The thesis
Dual-momentum is a classic trend-follower: it holds the strongest-trending names by 60-day return from a 24-stock large-cap universe (mega-cap tech, financials, staples, healthcare, energy, industrials) and exits when the trend breaks. The bet is simple and well-documented in the literature — winners tend to keep winning over medium horizons, and cutting losers early caps the damage when they don't.
That design shows up cleanly in the trade statistics. Across the 451-day backtest the strategy took 136 trades but won only 28.79% of them. A sub-30% win rate is not a red flag here — it is the signature of trend-following, where a small number of large winners pay for many small, quickly-cut losses. Turnover of 2,638% confirms an active, in-and-out posture rather than buy-and-hold.
Backtest performance
Headline numbers are respectable: a 23.5% total return, 12.52% CAGR, and a Sharpe of 0.95, growing $10,000 to $12,349. The 15.67% max drawdown is meaningful but not alarming for an equity trend strategy. Fees ($136) and FX costs ($0) were negligible against the return.
Validation — the honest part
This is where the story turns cautious. Walk-forward validation failed. Three of four out-of-sample folds were positive, and folds 3 and 4 were excellent (+25.59% at Sharpe 3.32; +13.34% at Sharpe 2.15). But fold 2 (Jan–Jul 2025) lost 7.31% with a 17.15% drawdown — worse than the full-period drawdown — showing the strategy can whipsaw badly in choppy, trendless regimes.
The deflated statistics tell the real tale. A Probabilistic Sharpe Ratio of 0.893 looks healthy, but the Deflated Sharpe Ratio of 0.476 — which penalizes the 6 trials run — sits below a coin flip. In plain terms: after accounting for how many configurations were tested, we cannot be confident the edge is real rather than lucky. That is exactly why the gate held it back from auto-deploy.
Recent activity: a strategy in cash
The live agent has been strikingly quiet. Every scheduled run from July 28 through August 4 reports 0 executed, 0 rejected, with the book flat at $10,000 cash. No qualifying trends have cleared the entry bar. This is arguably correct behavior — a trend model with nothing to trend on should hold cash rather than force positions — but it also means the strategy is currently contributing no signal and no return. Prolonged inactivity deserves a look at whether entry thresholds are too strict for the current regime.
Verdict
Dual-momentum is a credible, literature-grounded strategy with a clean backtest and disciplined risk-cutting. But the failed validation and weak DSR are a genuine warning: the OOS strength is concentrated in two favorable folds, and fold 2 shows how ugly a trendless stretch gets. Combined with weeks of sitting on the sidelines, the sensible stance is to keep it on paper, watch whether it re-engages the market, and resist reading the strong backtest as a settled edge.