Thesis
Dual-momentum is a trend-following strategy with a simple mandate: hold the strongest-trending names by 60-day return, and exit when the trend breaks. It runs over a 24-name large-cap universe spanning tech (AAPL, MSFT, NVDA), financials (JPM, V, MA), healthcare (JNJ, UNH, ABBV), staples (PG, KO, WMT), and cyclicals (XOM, CAT, DIS). The design is classic momentum: let winners run, cut the rest quickly.
Backtest Performance
Over 451 days the strategy returned 23.5% (12.52% CAGR), lifting a hypothetical account to $12,349.63. The Sharpe ratio of 0.95 is respectable, with a max drawdown of 15.67%.
Two numbers reveal the strategy's true character. The win rate is just 28.79% across 136 trades — fewer than one trade in three is profitable — yet total return is strongly positive. That is the signature of trend-following: many small losses funded by a handful of large winners. The second flag is turnover of 2,638%, meaning the book churns roughly 26x over the test. Fees were modest ($136) here, but at higher capital or wider spreads that churn becomes a real drag.
Validation
This is where caution enters. The walk-forward validation did not pass. Across four folds, three were positive:
- Fold 1 (Aug 2024–Jan 2025): +5.85%, Sharpe 1.23
- Fold 2 (Jan–Jul 2025): -7.31%, Sharpe -1.05, 17.15% drawdown
- Fold 3 (Jul–Dec 2025): +25.59%, Sharpe 3.32
- Fold 4 (Dec 2025–May 2026): +13.34%, Sharpe 2.15
The out-of-sample return of 13.34% and OOS Sharpe of 2.15 are encouraging, and the Probabilistic Sharpe Ratio (0.893) is high. But the Deflated Sharpe Ratio — which penalizes for the 6 trials run during selection — falls to 0.476, below the confidence bar. In plain terms: the headline Sharpe survives once, but not decisively after adjusting for how many variants were tested. Fold 2's sharp loss also shows the strategy is vulnerable in choppy, trendless regimes where momentum whipsaws.
Live Activity
The live paper account has been notably quiet. The last six scheduled runs (July 23 through July 30) each report 0 executed, 0 rejected, with the book fully in cash at $10,000 and total value flat at $10,000. No new positions, no exits. This is consistent with a market where no name clears the 60-day trend threshold — the strategy is doing exactly what it should by staying out rather than forcing trades. Still, a week of pure cash means zero participation in any move, up or down.
Verdict
Dual-momentum is a credible trend engine with an honest backtest, but the failed cross-validation and low DSR argue against treating that 23.5% as durable edge. Its strengths — asymmetric payoff, disciplined exits, and a willingness to sit in cash — are also its risks: a low win rate demands patience, high turnover demands cheap execution, and a single bad regime (Fold 2) can erase months of gains. Worth watching live, not yet worth trusting with size.