Thesis
momentum-code pursues a straightforward premise: at each rebalance, identify the top positive price movers within a 24-name universe of large-cap US equities spanning tech, financials, healthcare, consumer, energy, and industrials — then allocate capital to those names with a per-position cap to prevent concentration. No factors, no forecasts; purely price-driven rotation.
Backtest Snapshot
Over 451 days of simulated trading, the strategy compounded to a 19.76% total return (10.6% CAGR), reaching a final equity of $11,976 from a $10,000 base. Transaction costs were minimal at $5 total with zero FX exposure, reflecting the all-USD universe.
The headline numbers carry an asterisk. The full-period Sharpe of 0.65 is modest, and maximum drawdown reached 20.48% — a meaningful pullback for a strategy trading blue-chip names. Win rate is reported at 0%, which likely reflects how the metric is calculated (completed round-trips only, with just 5 total trades logged), rather than a literal record of no profitable exits.
Walk-Forward Validation
The more informative picture comes from the four-fold walk-forward split:
| 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. Three of the four produced Sharpe ratios above 1.9, and the most recent out-of-sample fold (Fold 4, which is also the OOS return of 13.71% with a Sharpe of 1.93) is arguably the cleanest read: unseen data, recent market regime, solid risk-adjusted result.
Fold 2 is the outlier. A 3.27% return paired with a 16.55% drawdown and a 0.46 Sharpe points to a regime — likely the choppy, tariff-rattled first half of 2025 — where pure price momentum struggled. That's expected behavior for this strategy type; it underperforms in mean-reverting or high-volatility markets.
Why Validation Failed
Despite four positive folds, the strategy did not pass the validation gate. The Probabilistic Sharpe Ratio (PSR) of 0.811 and Deflated Sharpe Ratio (DSR) of 0.338 tell the story. With 6 trials tested and a relatively short history, the DSR adjusts for multiple-testing bias harshly — and a DSR below 0.5 means there's insufficient statistical confidence that the observed Sharpe is above a benchmark of zero. This isn't a judgment that the strategy is bad; it's a judgment that the evidence base is still thin.
Recent Activity
The strategy's last executed trades were on May 31 – June 1, picking up XOM (13 shares @ $148.69), NVDA (8 shares @ $224.20), BAC (38 shares @ $51.60), HON (8 shares @ $237.86), and MSFT (4 shares @ $450.24) — a diversified cross-sector snapshot consistent with broad momentum leadership at the time.
Since then, six consecutive daily runs have produced zero executions, with 1–3 trades rejected each day. Portfolio value has drifted from $9,573 (June 19) to $9,457 (June 26), a ~1.2% slide likely reflecting mark-to-market moves in existing holdings rather than new activity. The strategy appears to be in a holding pattern — no new movers are clearing its entry threshold.
Strengths and Risks
Strengths: Clean, auditable logic; consistent positive returns across all walk-forward periods; low fees; recent OOS performance is the strongest fold of the set.
Risks: High turnover (92.74%) could amplify slippage in live markets beyond the backtest assumption. The strategy is regime-sensitive — Fold 2 demonstrated it can lag meaningfully in volatile, directionless tape. The DSR failure is a legitimate statistical caution, not a technicality to dismiss.
Outlook
momentum-code is a plausible live strategy, but the validation system is doing exactly what it should: asking for more track record before deployment. Another two to three months of live paper performance — particularly if it navigates a choppy period without deep drawdown — would substantially strengthen the DSR case.