Method
Rule / pseudocode
_Trend-following captures the well-documented positive autocorrelation of medium-term price moves across asset classes (time-series momentum). CTAs monetise it; it persists because it is a convex, behaviourally-driven premium that is uncomfortable to hold through whipsaws._
Out-of-sample equity curve
Out-of-sample performance
Hypothesis
A 50-day Donchian breakout entry with a 20-day trailing exit, held non-overlapping across a diversified ETF basket, earns a positive after-cost risk-adjusted return out of sample.
Method
Instrument: QQQ · Entry: close > prior 50-day high · Exit: close < prior 20-day low
Results
Out-of-sample Sharpe was 0.85, versus 0.52 in-sample. A bootstrap test returned p = 0.000 (statistically significant). Walk-forward Sharpe stayed positive in 5 of 5 folds. Worst out-of-sample drawdown was -5.83%.
Analysis
In-sample (2007 to late-2019) the basket breakout returned 50.8% with a daily mark-to-market Sharpe of 0.50 and a shallow -10.6% maximum drawdown, reflecting a strategy that sits in cash most of the time and only deploys capital on confirmed 50-day breakouts. Out-of-sample (late-2019 to mid-2025) the after-cost Sharpe was 0.85 on 5.9% annualised return, 6.9% volatility and just -5.8% drawdown — the edge did not degrade out of sample, which is the behaviour we want to see and the opposite of an over-fit curve.
Walk-forward validation across five folds was positive in every fold (0.46, 0.14, 2.27, 0.77, 0.12) for 100% consistency and a blended Sharpe of 0.67. Two folds are near-zero, so we should be honest that the headline number is carried by a couple of strong trend regimes (notably the 2020 and 2022 cross-asset trends in bonds, gold and oil); the strategy earns little in quiet, range-bound years and analysing the fold spread makes that plain.
Significance is measured on 57 strictly non-overlapping out-of-sample trades via a demeaned block-bootstrap (H0: zero edge). The per-trade return series is strongly right-skewed — losers are cut quickly at the 20-day trailing low while winners are allowed to run — giving an observed per-trade Sharpe well outside the null distribution and a p-value of 0.00 (below the 0.10 promotion bar). Because the p-value is scale-invariant it is the reliable gate here, and it holds up.
Costs are modelled at 10 bps round-trip, deducted on entry days rather than on every held bar, which is the correct treatment for an event strategy that holds positions for weeks. The 57-trade sample clears the 30-trade minimum, so the result is assessable rather than anecdotal, though 57 trades across five correlated instruments is still a modest sample and the instruments are not fully independent.
Verdict: PROMISING. All four gates are met — 57 independent OOS trades, OOS Sharpe 0.85, p < 0.10, and 100% of walk-forward folds positive — and the edge is a well-documented managed-futures premium rather than a data-mined artefact. The honest caveats are the low absolute return (capital is idle most of the time), the regime-dependence of the returns, and the correlation between basket members; it is promoted to paper trading to gather genuinely out-of-sample forward evidence.
Provenance
Synthesized from 1ui4ptb, 1ukgzs3. The r/quant performance thread notes CTAs (trend-followers) had an exceptional year YTD while equity stat-arb struggled; the USTEC thread is a retail attempt at the same trend/breakout edge. The strongest credible version is a classic Donchian channel breakout applied to a diversified, liquid ETF basket with strictly non-overlapping holds — the canonical managed-futures edge, testable cleanly on daily data.
Evidence
Walk-forward Sharpe by fold
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_Generated by labs-algo-trading. Automated research — not financial advice. Backtests overfit; treat verdicts as hypotheses._