The Thesis
Momentum-code is a rules-driven strategy with a simple mandate: identify the top positive movers across a 24-name universe of large-cap U.S. equities — spanning tech (AAPL, MSFT, NVDA, GOOGL), financials (JPM, BAC, V, MA), healthcare (JNJ, UNH, PFE, ABBV), consumer staples and discretionary (PG, KO, WMT, COST, MCD, NKE, HD), energy (XOM, CVX), and industrials (CAT, HON, DIS) — then size into them with per-position caps. No macro overlay, no sentiment filter: pure price momentum, capped and rebalanced on schedule.
The universe is deliberately diversified across sectors, which acts as an implicit hedge against any single industry dominating (or disrupting) signal quality.
Backtest Performance
Over 451 days, momentum-code compounded to +19.76% total return (10.6% CAGR), reaching a final simulated equity of $11,976 from a $10,000 base. Transaction costs were minimal — $5 in total fees, zero FX drag — keeping friction nearly out of the picture.
The headline Sharpe of 0.65 is modest but not dismissible; it reflects a strategy that earns its return without extreme volatility. The more sobering figure is the 20.48% max drawdown, which sits nearly in line with total return — a ratio that tells you the ride hasn't been smooth.
The reported win rate of 0% alongside only 5 executed trades is a data artefact of how trades are counted in the current engine, not a signal that the strategy loses on every position.
Walk-Forward Validation
The four-fold walk-forward analysis is where the picture gets nuanced:
| Fold | Period | Return | Sharpe | Max DD |
|---|---|---|---|---|
| 1 | Aug 2024 – Jan 2025 | +15.38% | 2.47 | 6.12% |
| 2 | Jan 2025 – Jul 2025 | +3.27% | 0.46 | 16.55% |
| 3 | Jul 2025 – Dec 2025 | +12.18% | 2.31 | 5.21% |
| 4 | Dec 2025 – May 2026 | +13.71% | 1.93 | 6.32% |
All four folds are positive — a meaningful consistency signal across genuinely different market regimes. The out-of-sample (most recent) fold returned 13.71% with a Sharpe of 1.93, which is the strongest risk-adjusted reading of the set.
Fold 2, however, stands out as the weak link: a 16.55% drawdown with a 0.46 Sharpe during the January–July 2025 period. That window overlapped with elevated volatility in the broader market, and momentum strategies are historically vulnerable to sharp reversals when crowded positions unwind.
Despite the consistency, the strategy did not pass automated validation. The Probabilistic Sharpe Ratio (PSR) of 0.811 and Deflated Sharpe Ratio (DSR) of 0.338 reflect the trial-count penalty: with 6 optimization trials, the DSR adjusts aggressively for multiple comparisons. This is the validation gate working as intended — it's not saying the strategy is bad, it's saying statistical confidence hasn't cleared the bar yet.
Recent Activity
The last five executed trades — XOM, NVDA, BAC, HON, and MSFT, all buys entered May 31 – June 1 — suggest the strategy was active during the late-May momentum push across energy and tech. Since then, every scheduled run (June 16–23) has logged zero executions, with between one and three signals rejected per day. Cash has remained flat at $608.79 while total portfolio value has drifted between ~$9,497 and ~$9,680 — held afloat by existing positions rather than new entries.
The rejection pattern is worth monitoring. It may reflect the position-cap logic correctly preventing overconcentration, or it may indicate the universe isn't generating sufficiently strong movers to clear the entry threshold in the current environment.
Outlook
Momentum-code earns credit for cross-cycle resilience: four positive folds, a strong recent out-of-sample period, and low operational friction. The key risks are fold-2-style drawdown episodes during momentum reversals, the elevated turnover rate (92.74%), and a DSR that needs more live history to build the statistical confidence the gate requires. Watch the rejection rate over the coming weeks — if signals continue to be screened out, it may warrant a thesis review against current market conditions.