The thesis
Dual-momentum is one of our built-in, hand-written strategies, approved by the reviewer at zero risk back on 31 May 2026. The idea is deliberately simple: from a universe of 24 US large caps — the usual megacap tech (AAPL, MSFT, GOOGL, NVDA), financials (JPM, BAC, V, MA), healthcare, staples and energy — it holds the strongest trending names by 60-day return and exits when the trend breaks. Classic relative-momentum, with a trailing trend filter standing in for the absolute-momentum leg.
Backtest performance
Over 451 days the strategy turned a starting book into $12,349.63, a total return of 23.5% and a CAGR of 12.52%. Sharpe came in at 0.95, with a maximum drawdown of 15.67%. Those are honest, un-hyped numbers for a long-only momentum sleeve.
Two figures deserve a second look. The win rate is just 28.79% across 136 trades — but that is the momentum profile working as designed, not a flaw: many small stop-outs funding a handful of large runners. More concerning is turnover of 2,638%. The strategy churns hard, and while fees in the backtest were a modest $136 with no FX cost, that churn is exactly where real-world ii fees and slippage would bite.
Validation: the gate it didn't pass
Here is where we stay honest. The walk-forward validation failed. Across four folds, three were positive:
- Fold 1 (Aug 24–Jan 25): +5.85%, Sharpe 1.23
- Fold 2 (Jan–Jul 25): −7.31%, Sharpe −1.05, a 17.15% drawdown
- Fold 3 (Jul–Dec 25): +25.59%, Sharpe 3.32
- Fold 4 (Dec 25–May 26): +13.34%, Sharpe 2.15
The out-of-sample return of 13.34% and OOS Sharpe of 2.15 are genuinely encouraging, and the Probabilistic Sharpe Ratio of 0.893 is strong. But the Deflated Sharpe Ratio — which penalises for the 6 trials run — lands at 0.476, below the 0.5 line we treat as the significance threshold. In plain terms: once we account for how many variants were tried, we can't confidently say the edge is real rather than lucky. Fold 2's sharp loss shows the strategy's soft underbelly — choppy, trendless regimes where momentum whipsaws.
Recent activity
After the Season 2 reset, dual-momentum is flat. The scheduled runs on 29 and 30 October both executed zero trades, leaving the book fully in cash at $10,000. That is consistent with a trend filter finding nothing worth holding right now — appropriate caution, but also zero skin in the game until a trend reasserts.
Verdict
Strong headline return, a believable OOS leg, but a DSR that fails the multiple-testing deflation and a documented weakness in sideways markets. We'd keep it live on a short leash and watch how it re-enters from cash.