The thesis
Dual-momentum is a classic trend-following idea applied to a 24-name universe of US large caps spanning tech, financials, healthcare, staples, and energy. The rule is simple: hold the strongest trending names ranked by 60-day return, and exit when the trend breaks. It is the kind of strategy that lives or dies on persistence — it needs clear, sustained moves to capture, and it bleeds when markets chop sideways.
Backtest performance
The headline numbers are respectable. Over 451 trading days the strategy returned 23.5%, compounding to a final equity of $12,349.63 from a $10,000 base — a CAGR of 12.52%. Risk-adjusted, it carries a Sharpe of 0.95 against a maximum drawdown of 15.67%.
Two figures deserve a closer look. The win rate is just 28.79% across 136 trades. That is not necessarily a flaw — momentum strategies are structurally lopsided, paying for many small losing exits with a handful of large winners — but it does mean the equity curve leans heavily on a few trades going right. More concerning is turnover of 2,638%: the book churns itself roughly 26 times over the period. In this frictionless-ish model fees totalled only $136, but in live conditions that level of trading is a real headwind.
Validation: the gate it failed
This is where enthusiasm should cool. The walk-forward validation did not pass. Across four out-of-sample 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, with a 17.15% drawdown
- Fold 3 (Jul–Dec 2025): +25.59%, Sharpe 3.32
- Fold 4 (Dec 2025–May 2026): +13.34%, Sharpe 2.15
Fold 2 is the warning. In a hostile six-month stretch the strategy lost money and drew down harder than its own full-period figure — exactly the regime (no durable trends) that momentum fears. The aggregate out-of-sample return of 13.34% and OOS Sharpe of 2.15 look healthy, but the deflated Sharpe ratio sits at just 0.476. With six trials behind the search, that deflation reflects genuine uncertainty that the edge survives selection bias. A probabilistic Sharpe of 0.893 is encouraging; a DSR below 0.5 is why the gate stayed shut.
Live activity: currently dormant
The live sleeve tells its own story. Every scheduled run from 7 October through 14 October reports the same line: 0 executed, 0 rejected, cash and total both parked at $10,000. The strategy has not held a single position all week. No names are clearing the trend filter, so it is sitting flat — doing exactly what a disciplined trend system should do in the absence of signal, but also generating no return while it waits.
Verdict
Dual-momentum is a coherent, well-behaved strategy with a plausible edge and sensible risk controls. But the failed validation gate and the negative Fold 2 are real: the backtest flatters a strategy whose out-of-sample durability is unproven after accounting for multiple trials. Its current all-cash stance is a feature, not a bug — yet it underlines that this is a regime-dependent engine. Watch for whether it deploys capital into the next clear trend, and how Fold-2-type conditions are handled before trusting it with size.