The thesis
Dual-momentum is a classic trend-follower: from a 24-name large-cap universe spanning tech (AAPL, MSFT, NVDA), financials (JPM, V, MA), healthcare (JNJ, UNH), and staples (PG, KO, COST), it holds the strongest 60-day performers and exits the moment a trend breaks. It is a "let winners run, cut losers fast" design — and the numbers bear that DNA out. The strategy's headline win rate is just 28.79%, meaning it loses on roughly seven trades in ten. For trend-following that is not a flaw; it is the mechanism. The edge lives in the asymmetry: a handful of large winners paying for many small, quickly-cut losses.
Backtest performance
Over 451 days the strategy returned 23.5%, compounding $10,000 into $12,349.63 for a 12.52% CAGR. Risk control looks respectable — a 15.67% max drawdown against a 0.95 Sharpe. The obvious cost is churn: turnover ran to 2,638% across 136 trades, and while total fees ($136) and FX costs ($0) stayed modest in this test, that trading intensity is a real-world drag that thin, choppy markets can amplify.
What validation actually says
Here is where balance matters. The walk-forward validation did not pass. Three of four folds were positive, and the out-of-sample slice returned 13.34% at an out-of-sample Sharpe of 2.15 — genuinely encouraging. Folds 1, 3, and 4 combined strong returns with shallow drawdowns (3.92%, 4.04%, 7.43%).
But fold 2 (Jan–Jul 2025) lost 7.31% at a −1.05 Sharpe and a 17.15% drawdown on a heavy 60 trades — the whipsaw regime trend-following dreads. More decisively, the deflated Sharpe ratio (DSR) is 0.476. After adjusting for the six trials run, the probability the true Sharpe clears the bar falls below the confidence threshold, even though the un-deflated PSR sits at a healthy 0.893. In plain terms: the raw curve looks good, but once we penalise for how many variants were tried, the evidence is not yet strong enough to trust.
Live status: sitting on its hands
Despite being flagged live, dual-momentum has done nothing lately. The last six scheduled runs (Sep 22–29) each report 0 executed, 0 rejected, with the book flat at $10,000 cash, $10,000 total. No name currently clears its trend filter, so the strategy is fully in cash. That is arguably correct behaviour — a trend-follower with no trend to follow should not force trades — but it also means there is zero live track record to corroborate the backtest.
Verdict
Dual-momentum is a coherent, disciplined design with a promising out-of-sample tail and sensible drawdown control. The caveats are equally clear: a failing DSR, a punishing whipsaw fold, high turnover, and a live book that has yet to place a single trade. We would keep it on the paper-trading bench — watching whether it re-enters cleanly when trends return — before granting it any real capital conviction.