The thesis
Dual-momentum is a trend-follower with a simple rule: hold the strongest names by 60-day return and exit when the trend breaks. Its universe is 24 large-cap U.S. stocks spanning tech, financials, healthcare, staples, energy and industrials — a deliberately liquid, well-diversified pool. The logic is well-worn in the literature: let winners run, cut losers early, and accept that most trades will be small losses offset by a handful of large gains.
Headline performance
Over a 451-day backtest the strategy returned 23.5% (12.52% CAGR), ending at $12,349 on $10,000 of starting capital, with a Sharpe of 0.95 and a max drawdown of 15.67%. That return profile is respectable, but two numbers deserve scrutiny. First, the win rate is just 28.79% across 136 trades — entirely consistent with momentum, where a few outsized winners carry the book, but it leaves little margin if the big winners stop showing up. Second, turnover is 2,638%. That is a lot of churn, and the $136 in fees is a direct tax on every entry and exit.
Validation: the strategy did not pass
This is the part that matters. Our walk-forward validation across 4 folds returned a verdict of not passed. Three of four folds were positive, and the out-of-sample segment returned 13.34% at a flattering 2.15 Sharpe — but the overall statistics tell a more sober story. The deflated Sharpe ratio (DSR) is 0.476, well short of what we require once you account for the 6 trials that went into tuning this strategy. The probabilistic Sharpe (0.893) is borderline rather than convincing.
The fold-by-fold detail exposes the real risk: fold 2 (Jan–Jul 2025) lost 7.31% with a negative Sharpe of -1.05 and a 17.15% drawdown — deeper than the full-sample max drawdown. Momentum works until it doesn't; in choppy, trendless or sharply reversing markets it bleeds. Fold 3's standout +25.59% is doing a lot of the headline work.
Recent activity
Right now the strategy is doing nothing — and that is by design. The last six scheduled runs (Oct 2 through Oct 9) each executed 0 trades, with the book flat at $10,000 cash and no open positions. A trend-follower with no qualifying trend simply waits. It is not a malfunction, but it does mean the live track record is currently empty; there is no realized P&L to evaluate yet.
The balanced read
Strengths: a clean, diversified universe, a disciplined exit rule, and a return profile that behaves as momentum should. Risks: a sub-30% win rate that depends on tail winners, heavy turnover that fees will erode, clear regime sensitivity (see fold 2), and — most importantly — a failed validation gate driven by a weak deflated Sharpe once trial count is accounted for. The honest conclusion is that the headline 23.5% is not yet trustworthy enough to deploy with conviction. We'd want to see live trading actually begin, and the out-of-sample edge survive more scrutiny, before upgrading the verdict.