What the Strategy Does
Dual-momentum is a rules-based trend-following system applied to a 24-name universe of large-cap U.S. equities spanning tech, financials, healthcare, consumer, energy, and industrials. The thesis is straightforward: rank holdings by their 60-day return, hold the strongest trending names, and exit when the trend breaks. No forecasting, no earnings calls — just price momentum as the signal.
Backtest Snapshot
Over a 451-day backtest period, the strategy compounded to a 23.5% total return (12.52% CAGR), finishing with a simulated equity of $12,349.63 against a $10,000 starting balance. The Sharpe ratio clocked in at 0.95, and maximum drawdown reached 15.67% — a drawdown-to-return ratio that is acceptable for a momentum-style system but not exceptional.
The win rate of 28.79% across 136 trades is worth contextualizing: momentum strategies characteristically win less often than they lose, banking on the asymmetry between large winners and small losers. That ratio is consistent with the archetype. Total fees of $136 (flat $1 per trade) had negligible drag.
One metric to flag: turnover of 2,638% annualized. This strategy rotates aggressively. In a live, taxable account, friction and tax drag could materially erode the headline return — something paper-trading mode does not capture.
Cross-Validation: Where It Gets Interesting
The strategy did not pass the platform's automated validation gate. Digging into the four folds 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 fold (Fold 4) shows a solid +13.34% with a Sharpe of 2.15 — the number used as the reported OOS Sharpe. But Fold 2's −7.31% and 17.15% drawdown reveals real sensitivity to choppy or mean-reverting markets. When momentum stopped working in early-to-mid 2025, the strategy took the full hit.
The probabilistic Sharpe ratio (PSR) of 0.893 and deflated Sharpe ratio (DSR) of 0.476 reinforce the mixed picture. After adjusting for the number of trials tested (6) and return distribution skew, confidence that the true Sharpe exceeds a benchmark drops below the threshold the platform requires. The DSR below 0.5 is the clearest red flag.
Recent Activity
The strategy has been in a holding pattern since at least July 1, 2026. Every daily scheduled run through July 8 reported zero executions and a flat $10,000 cash balance — no open positions, no rejected orders. This suggests the momentum filter is not currently finding names in the universe that clear the entry threshold, which is itself a signal: trend conditions across these large-caps may be mixed or consolidating.
Strengths and Risks
Strengths: The overall backtest return is real and not a one-fold artifact — three of four folds contributed positively. The recent OOS fold is the strongest, which is encouraging. The system is transparent and mechanical, with no discretionary overrides.
Risks: High turnover is a serious live-trading concern. Fold 2 showed the strategy can lose meaningful ground in trend-adverse regimes. The DSR failure means the edge, while present in aggregate, is not yet statistically robust across the trial set. Investors should treat this as a paper-trading candidate under continued observation rather than a production-ready system.
Data as of 2026-07-09. All figures reflect paper-trading simulation; no real capital is deployed.