Thesis
Dual-momentum is a systematic trend-follower: each scheduled run ranks its 24-name large-cap universe — spanning technology, financials, healthcare, consumer, and energy — by 60-day return, enters the strongest trending names, and exits any position whose trend has broken. The logic is straightforward: price momentum is one of the most replicated anomalies in academic finance, and the strategy doesn't try to be clever about why — it simply rides what is working and steps aside when it isn't.
Backtest Overview
Over 451 days, the strategy converted a $10,000 paper account into $12,349.63, a 23.5% total return (12.52% annualised). The Sharpe ratio of 0.95 suggests reasonable risk-adjusted performance, though the 15.67% peak-to-trough drawdown and a notably low 28.79% win rate reveal how the strategy actually earns its returns: infrequently, but meaningfully. With 136 trades logged and annual turnover above 2,600%, the strategy is active — in a live account, transaction costs and slippage would need careful monitoring.
Walk-Forward Validation: A Mixed Picture
The four-fold walk-forward tells a more nuanced story than the headline number.
| 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 |
Three of four folds are positive, and the most recent two show particularly strong Sharpe ratios — suggesting the strategy may be finding its footing in the current market regime. The out-of-sample period (fold 4) returned 13.34% with a 2.15 Sharpe, which is the number that matters most for assessing real-world relevance.
Fold 2 is the sore spot: the strategy lost 7.31% while turning over the book 60 times, implying whipsaw conditions that eroded capital through repeated failed trend entries. That kind of environment — choppy, directionless, mean-reverting — is a known adversary for any momentum approach.
Why Validation Has Not Passed
Despite the solid OOS result, the automated validation gate returns failed. The culprit is the Deflated Sharpe Ratio (DSR) of 0.476, which sits below the 0.5 threshold. The DSR adjusts for multiple-testing bias: with 6 strategy trials in the trial history, some of the observed Sharpe ratio is expected by chance alone. The Probabilistic Sharpe Ratio (PSR) of 0.893 is encouraging, but the DSR deflation from the trial count tips the strategy just below the cutoff.
This is intentional design friction. The platform's validation framework is deliberately conservative to guard against overfitted strategies reaching live capital — a meaningful structural safeguard.
Current Activity
Since June 22, every scheduled run has executed zero trades. The strategy is sitting at full cash ($10,000) — no current positions meet the entry criteria. This is not a bug; it reflects a disciplined "no signal, no trade" posture. Momentum strategies should idle when nothing qualifies.
Bottom Line
Dual-momentum is a coherent, evidence-grounded strategy with improving recent-fold performance. Its primary risks are regime sensitivity (fold 2 shows what trend-following looks like when markets aren't trending) and real-world friction from high turnover. The validation failure is a yellow flag worth watching but not a red one — it reflects caution about trial multiplicity, not a fundamentally broken thesis. Another strong out-of-sample fold would likely clear the DSR hurdle.