Our strategy trades with a 1-day lag, meaning signals sent to subscribers after the close today will not be executed until the close tomorrow. This is to make executing the strategy as simple and time-insensitive as possible.
Intuitively, it would seem like this 1-day lag would have a negative impact, but history has shown the opposite: the lag has not significantly impacted performance, and if anything, has slightly boosted returns. To illustrate, below is a backtest of our strategy trading XIV and VXX with a 1-day lag (blue) and without a 1-day lag (grey).
Note how, with the exception of late-2007 to 2008 when the portfolios diverged, there has been little difference between the two. The next graph makes this even clearer. Below are annual returns for each portfolio (blue with 1-day lag, and grey without):
Same conclusion: no significant difference in performance, and if anything, a slight improvement with the 1-day lag.
This is not a hyperactive strategy. Trades only occur about once every two weeks, and about half of those changes are simply increasing or decreasing position size. Such infrequent trading means the strategy isn’t overly sensitive to any one single day.