The Thesis
Dual-momentum is one of the most academically studied systematic strategies: rank assets by their trailing 60-day return, hold the strongest names, and exit when trend breaks. Headmars runs this logic across a 24-stock universe of large-cap US equities spanning technology, financials, healthcare, consumer staples, energy, and industrials — a deliberate mix designed to give the momentum signal something to work with across market regimes.
The appeal is structural simplicity. There are no earnings models, no sentiment scrapers, no macro overlays. Price is the only input.
Backtest Snapshot
Over the 451-day backtest window ending late May 2026, dual-momentum delivered:
| Metric | Value |
|---|---|
| Total return | 23.5% |
| CAGR | 12.52% |
| Sharpe ratio | 0.95 |
| Max drawdown | 15.67% |
| Win rate | 28.79% |
| Trades | 136 |
| Turnover | 2,638% |
The headline numbers are respectable. A sub-16% drawdown with a near-1.0 Sharpe is a reasonable starting point. But the win rate of 28.79% is a flag worth understanding: this strategy loses more often than it wins and depends on a small number of large trends to carry aggregate performance. That asymmetry is normal for momentum — but it means bad periods can arrive with little warning.
The turnover figure of 2,638% annualised is the other number worth pausing on. Even with negligible fee assumptions ($1 per trade, $136 total), that level of churn is aggressive and could erode real-money returns significantly in a live account with spread and market-impact costs.
Cross-Validation: Three Positives, One Rough Patch
Four time-based folds reveal how inconsistent the strategy has been across regimes:
| Fold | Period | Return | Sharpe | Max DD | Trades |
|---|---|---|---|---|---|
| 1 | Aug 2024 – Jan 2025 | +5.85% | 1.23 | 3.92% | 20 |
| 2 | Jan 2025 – Jul 2025 | −7.31% | −1.05 | 17.15% | 60 |
| 3 | Jul 2025 – Dec 2025 | +25.59% | 3.32 | 4.04% | 16 |
| 4 | Dec 2025 – May 2026 | +13.34% | 2.15 | 7.43% | 42 |
Fold 3 is exceptional — 25.59% return on just 16 trades with a Sharpe of 3.32 and a 4% drawdown. That is the environment dual-momentum was built for: clean, persistent trends.
Fold 2 tells the opposite story. The strategy generated 60 trades (nearly four times fold 3's activity), lost 7.31%, and endured a 17% peak-to-trough decline. The trade explosion suggests the strategy was whipsawing — repeatedly entering and exiting as momentum signals conflicted with choppy price action. High activity in losing periods is a structural risk for any trend-following system.
Validation Gate: Failed
The platform's automated validation gate rejected the strategy. The key numbers:
- PSR (Probabilistic Sharpe Ratio): 0.893 — roughly 89% confidence the true Sharpe exceeds zero. Individually, that is acceptable.
- DSR (Deflated Sharpe Ratio): 0.476 — after penalising for six trials, confidence that the Sharpe is genuinely positive drops below 50%. This is the gate-failing metric.
The DSR penalty reflects a real concern: when a strategy is run and tuned across multiple parameter sets or windows, the best-looking result overstates true edge. With six trials and a relatively short backtest, dual-momentum has not yet demonstrated enough statistical separation from luck to clear the bar.
Current Posture: Fully in Cash
Scheduled runs from June 19 through June 26 all reported zero trades executed, with the full $10,000 paper portfolio sitting in cash. The strategy is signalling that no name in its 24-stock universe currently meets its momentum threshold — a cautious read of the current tape.
This is not necessarily a problem. Momentum systems should be willing to sit idle. The question is whether this is disciplined capital preservation or the early stages of another fold-2-style churn cycle.
Bottom Line
Dual-momentum has produced promising aggregate returns and its out-of-sample fold (Fold 4, +13.34%) is encouraging. But the DSR flag is real: six trials against a 451-day window is not enough history to dismiss overfitting risk. The strategy earns continued paper-trading monitoring, not live capital. A full additional regime — ideally including a genuine risk-off drawdown — would go a long way toward building the case for graduation.