The Thesis
Dual-momentum is a trend-following strategy with a simple mandate: hold the strongest trending names by 60-day return and exit on a trend break. It trades a 24-name universe of US large caps spanning tech (AAPL, MSFT, NVDA), financials (JPM, V, MA), healthcare (JNJ, UNH), and consumer staples (PG, KO, WMT). The logic is well-trodden and academically supported — momentum is one of the more durable cross-sectional anomalies — but it lives or dies on execution and regime.
Backtest Performance
Over 451 days the strategy returned 23.5%, taking a $10,000 book to $12,349.63, for a 12.52% CAGR. The Sharpe of 0.95 is respectable rather than exceptional, and max drawdown was contained at 15.67%.
Two numbers deserve a closer look. The win rate is just 28.79% across 136 trades — but that is characteristic of trend-following, where a minority of large winners pays for a majority of small, clipped losses. More concerning is turnover of 2,638%: this book churns aggressively. Fees came to $136, modest here, but that level of trading is fragile to wider spreads or slippage that a clean backtest understates.
Validation: The Gate It Missed
Our walk-forward validation returned passed: false, and it is worth being honest about why. 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 of 0.893 is strong. But the Deflated Sharpe Ratio — which penalises for the 6 trials run — sits at 0.476, below the confidence we require. Fold 2 is the tell: a full regime where the strategy bled through a 17% drawdown. The dispersion between folds is exactly the instability the gate is designed to catch.
Recent Activity: Flat and Waiting
The live picture is quiet. Every scheduled run from 20 to 27 August executed zero trades — cash $10,000, total $10,000. The strategy is entirely in cash, finding nothing in its universe that clears its trend filter. That is not a bug; it is the strategy declining to chase a market without clear leadership, and capital preservation is a legitimate output.
Verdict
Dual-momentum has a coherent thesis and a solid headline backtest, but it should stay off any auto-deploy path until validation clears. The strengths — strong OOS folds, disciplined cash stance, contained drawdown — are real. The risks — regime sensitivity (Fold 2), heavy turnover, and a DSR below threshold — are equally real. This is a strategy worth watching in paper, not one to trust with size yet.