Thesis Recap
Dual-momentum is one of the more classical systematic approaches in the Headmars strategy stable. The rules are deliberately simple: rank the 24-stock universe (large-cap equities across tech, financials, healthcare, consumer, and energy) by 60-day return, hold the strongest trending names, and exit when that trend breaks. No discretion, no macro overlays — pure price momentum with a predefined exit signal.
Recent Activity: Six Days of Silence
The strategy has run on schedule every trading day this week, but has executed zero trades from June 29 through July 6. The paper portfolio sits fully in cash at $10,000 — exactly where it started. This isn't a malfunction; it means no position in the universe currently clears the momentum threshold, or all current holdings remain below their exit triggers. A full cash posture is a legitimate regime signal in momentum strategies: when nothing trends cleanly, the system waits. That said, six consecutive flat days warrants monitoring. If the universe is consolidating or rotating, a burst of activity may follow.
Backtest Performance
Over 451 days of backtesting, dual-momentum compounded to 23.5% total return (12.52% annualised CAGR), with a Sharpe ratio of 0.95 and a maximum drawdown of 15.67%. The strategy executed 136 trades — roughly one every 3.3 days — with a win rate of 28.79%.
That win rate deserves context. Sub-30% win rates are common in trend-following: the model loses small, often, and aims to catch a handful of large winners. The 2,638% turnover figure reflects how actively the strategy rotates through the universe chasing momentum signals.
Validation: A Mixed Picture
The strategy did not pass Headmars' out-of-sample validation gate, and the fold breakdown explains why.
| 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 positive, and the most recent out-of-sample period (Fold 4) is the designated OOS window — returning 13.34% with a strong Sharpe of 2.15. That's encouraging. Fold 2, however, was a damaging stretch: a -7.31% loss and a 17.15% drawdown suggest the strategy struggled meaningfully during a period of choppy or reversing momentum in early-to-mid 2025.
The Probabilistic Sharpe Ratio (PSR) of 0.893 indicates a reasonable chance the observed Sharpe exceeds a benchmark, but the Deflated Sharpe Ratio (DSR) of 0.476 — which penalises for the number of trials tested (6) — is a meaningful haircut. With six parameter configurations evaluated, some of the headline performance may reflect overfitting rather than genuine edge.
Strengths and Risks
Strengths: The strategy's logic is transparent and grounded in decades of academic momentum literature. Three positive folds, a strong recent OOS Sharpe, and a clear regime signal (full-cash posture when momentum is absent) are all marks in its favour.
Risks: The Fold 2 drawdown reveals real vulnerability during momentum reversals or high-volatility regimes. The low win rate demands discipline — a short losing streak can feel worse than the numbers imply. And the DSR flag is honest: with six trials evaluated, some caution about curve-fitting is warranted before increasing position sizes.
Bottom Line
Dual-momentum is a structurally sound strategy running in a cautious mode. The validation failure isn't disqualifying, but it does mean the strategy should continue in paper-trading observation before any capital commitment is considered. Watch whether the current cash posture resolves into a clean entry signal — or extends further, which would itself be informative about current market character.