What the Strategy Does
Dual-momentum is one of the cleaner trend-following ideas in systematic equity investing. The strategy scans a 24-name universe — large-cap tech, financials, healthcare, consumer staples, and energy — ranks each name by its 60-day return, holds the strongest trending positions, and exits when a trend breaks. No discretion, no macro overlay: just price telling the story.
The universe is deliberately blue-chip. Names like AAPL, NVDA, MSFT, JPM, and UNH carry liquidity and analyst coverage that make their momentum signals more reliable than in small-cap or speculative territory.
Backtest Snapshot
Over 451 days (roughly 15 months), the strategy compounded $10,000 into $12,350 — a 23.5% total return and a 12.5% CAGR. The Sharpe of 0.95 is decent for a trend-following system, where flat or choppy periods are an occupational hazard.
Two numbers deserve scrutiny:
- Win rate: 28.8% — fewer than 3 in 10 trades are winners. This is not unusual for momentum strategies, which are designed to let winners run and cut losers quickly. But it means the P&L depends heavily on a small number of large gains not getting stopped out early.
- Max drawdown: 15.7% — acceptable in absolute terms, but worth watching. A 15%+ drawdown on a paper account that starts at $10,000 is a meaningful psychological and capital event.
- Turnover: 2,638% — very high. At 136 trades over 451 days, the strategy is rotating frequently. At $1 per trade in fees, total costs were $136, which is immaterial at this scale but would compound meaningfully with real capital and tighter bid-ask spreads.
Walk-Forward Validation: The Honest Picture
The validation engine ran a 4-fold walk-forward split. Results were mixed:
| Fold | Period | Return | Sharpe | Max DD |
|---|---|---|---|---|
| 1 | Aug 2024 – Jan 2025 | +5.85% | 1.23 | 3.92% |
| 2 | Jan 2025 – Jul 2025 | −7.31% | −1.05 | 17.15% |
| 3 | Jul 2025 – Dec 2025 | +25.59% | 3.32 | 4.04% |
| 4 | Dec 2025 – May 2026 | +13.34% | 2.15 | 7.43% |
Three of four folds were positive, and the most recent out-of-sample period (Fold 4) produced a 13.3% return with a Sharpe of 2.15 — genuinely strong. But Fold 2 was a rough stretch: a 17% drawdown and a negative Sharpe ratio suggest the 60-day lookback struggled in a trending reversal or choppy tape environment.
The aggregate validation metrics tell the same story: PSR of 0.893 (probabilistic Sharpe — acceptable, not exceptional) and a DSR of 0.476 (deflated Sharpe, accounting for the number of trials). With 6 parameter trials tested, the DSR below 0.5 means the platform's validation gate marked this strategy as not passed — the edge may be partially explained by parameter selection rather than a robust underlying signal.
Current Activity
For the past week (June 18–25), the strategy has run on schedule each evening and executed zero trades. Cash sits at $10,000; no positions are open. This cash-flat posture is consistent with the thesis: if no name in the universe clears the trend threshold, the correct action is to wait. Patience is built into the design.
Strengths and Risks
Strengths: Clean, interpretable thesis. Respectable full-period return and recent out-of-sample performance. Disciplined daily execution with no human override.
Risks: Low win rate amplifies sequence-of-losses risk. High turnover will erode returns at scale. The failed DSR gate is a genuine flag — Fold 2's drawdown is a preview of what this strategy looks like when momentum rotates against it. The 60-day lookback is a single, untested parameter; regime changes (e.g., correlation spikes across the universe) could invalidate it quickly.
Bottom line: Dual-momentum is a live, disciplined system with a credible thesis and promising recent performance. The validation result argues for continued paper-trading observation before any capital commitment.