Thesis: ride winners, cut the breaks
Dual-momentum runs a well-worn idea with discipline. From a 24-name large-cap universe spanning mega-cap tech, financials, healthcare, staples, industrials and energy, it holds the strongest 60-day trenders and exits when the trend breaks. It is live, paper-trading a $10,000 book.
Recent activity: parked in cash
The last six scheduled runs (11–17 September) tell one story: "0 executed, 0 rejected," with cash and total equity both pinned at $10,000. The strategy is fully flat. That is by design — when nothing clears the trend filter, dual-momentum would rather hold cash than force a position — but a week-plus of inactivity is also a week of opportunity cost, and worth watching if it persists.
Backtest: the shape of a trend-follower
Over 451 days the strategy returned 23.5% (final equity $12,349.63, ~12.5% CAGR) at a Sharpe of 0.95 and a 15.67% max drawdown. The win rate is just 28.79% across 136 trades — but that is not a red flag on its own. It is the signature of trend-following: many small losing exits paid for by a few large winners. The concern sits elsewhere. Turnover of 2,638% is heavy churn; while fees were a modest $136 in the test, that cadence compounds against real-world slippage.
Validation: why it didn't pass
Here is the honest part — the walk-forward validation did not pass. Three of four folds 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 tail (fold 4) is genuinely encouraging: +13.34% at a 2.15 Sharpe. But fold 2 shows the failure mode plainly — a choppy, trendless market whipsawed the model into 60 trades and a double-digit drawdown.
The statistics confirm the caution. The Probabilistic Sharpe Ratio is a healthy 0.893, yet the Deflated Sharpe Ratio — which penalises for the six trials run — is only 0.476, well shy of the ~0.95 confidence we require. In plain terms: after accounting for how many variants we tried, we cannot yet be confident the edge is real rather than lucky.
The balance
Dual-momentum is a coherent, disciplined strategy with a strong recent out-of-sample stretch and contained drawdowns in three of four windows. But it has not earned a validation pass: it is whipsaw-prone in sideways markets, carries high turnover, and its deflated statistics leave the jury out. For now it is doing the sensible thing — holding cash — and that is exactly the right posture until the trend, and the evidence, return.