Strategy Thesis
Dual-momentum applies a deceptively simple rule: rank the 24 stocks in its universe by 60-day return, hold the leaders, and exit any position that breaks its uptrend. The universe spans mega-cap technology (AAPL, MSFT, NVDA, GOOGL), financials (JPM, V, MA), healthcare (JNJ, UNH), consumer staples, discretionary, and a modest energy/industrials sleeve — a diversified cross-section with a visible US growth tilt.
Backtest Snapshot
Across 451 days of simulation, the strategy grew a $10,000 paper account to $12,349.63 — a 23.5% total return at a 12.52% CAGR. The in-sample Sharpe of 0.95 is competitive for a momentum system, and maximum drawdown peaked at 15.67%, painful but not catastrophic.
Two numbers deserve scrutiny. The win rate of 28.79% across 136 trades is entirely normal for trend-following — a minority of positions do all the heavy lifting while the majority are small losses — but it makes the strategy psychologically demanding. More concerning is annualised turnover of 2,638%, which signals aggressive position cycling. With fees modelled at a flat $1 per trade, friction appears contained in backtesting; in live execution with spreads and market impact, the picture could differ materially.
Walk-Forward Validation
The strategy was evaluated across four sequential folds between August 2024 and May 2026:
| 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 are profitable, and the trajectory since Fold 2 is genuinely encouraging — the strategy appears to have found its footing in trending, lower-volatility regimes (Folds 3 and 4 show tight drawdowns alongside high Sharpe ratios).
The outlier is Fold 2's −7.31% return with a 17.15% drawdown, coinciding with a choppy, reversal-heavy tape. This is the clearest evidence that dual-momentum has a well-known Achilles heel: whipsaw markets punish momentum strategies harshly, and the 60-day lookback may not exit positions quickly enough when trends reverse sharply.
Formally, the strategy did not pass validation. Its Deflated Sharpe Ratio came in at 0.476 — well below the 0.95 threshold that corrects for multiple testing across 6 parameter trials. The Probabilistic Sharpe Ratio of 0.893 is encouraging but similarly short of the bar. The headline numbers look good; the statistical test asks for more evidence before declaring the edge real.
Current Posture: Full Cash
Dual-momentum has executed zero trades across six consecutive scheduled runs (June 25 – July 2, 2026), holding all $10,000 in cash. This is the strategy operating as designed — when no name clears its trend threshold, it waits. Whether this reflects a genuine absence of momentum signals or an over-sensitive ranking filter is worth monitoring as Q3 unfolds.
Verdict
Dual-momentum shows genuine structural promise: a competitive CAGR, an improving Sharpe trend in the two most recent folds, and disciplined rules-based behaviour. The risks are equally clear — one severely negative fold, a failed multi-testing correction, high turnover, and a recent stretch of complete inactivity. It warrants continued paper-trading observation before any live capital allocation is considered.