We adjust our historical price data to remove gaps caused by stock splits, dividends and distributions. That may cause our charts to look different from other services that do not perform the same adjustments.
For example, if a stock splits 2-for-1, the price is suddenly half of what it used to be creating a large gap down on the chart. If you were unaware of the split, the chart would give you the impression that something bearish happened to the underlying company. In addition, most of the technical indicators on that chart would give sell signals because of the big drop in prices. Even those such a split is generally considered a neutral event, an unadjusted chart would contain lots of bearish signals.
In order to prevent these kind of misleading signals from appearing on our charts, whenever a 2-for-1 split occurs, we divide all of the historical prices for the stock by 2 and multiply all of the historical volume by 2 so that the bars prior to the split match up smoothly with the bars that appear after the split.
In addition to performing adjustments that remove large gaps caused by splits, we also adjust our historical data to remove smaller gaps caused by dividends and distributions. By making these additional adjustments, we ensure that all price movements on our charts are caused by pure market forces - i.e., the forces that Technical Analysis attempts to identify.
While these adjustments are very important for accurate technical signals, they can cause problems in the following circumstances:
- Our historical price data cannot be used to determine the actual buy or sell price for a stock at some point in the past.
- Our adjusted historical price data may not match up with unadjusted data from other sources.
- Adjusting historical price data can cause P&F reversal points to change if Traditional box scaling is used (the default).
Whenever a stock's historical data is adjusted, we add it to the list of recent adjustments on our Data Adjustments page.
IMPORTANT NOTE: If you want to see an unadjusted chart for a stock, add an underscore character ("_") to the front of the ticker symbol.
Dividend Adjustment Calculation Details:
Historical prices are adjusted by a factor that is calculated when the stock begins trading ex-dividend. The amount of the dividend is subtracted from the prior day’s price, and the result is divided by the prior day’s price. Historical prices are then multiplied by this factor.
Example: A stock closes at 40.00 on Monday. Tuesday it begins trading ex-dividend based on a 2.00 dividend. If the stock opens unchanged, it will be trading at 38.00. Unless we adjust the prior prices, the chart will show a misleading $2.00 gap.
To calculate the adjustment factor we subtract 2.00 from Monday’s price of 40.00 (= 38.00). Then we divide 38.00 by 40.00. The result is 0.95. We then multiply historical prices by 0.95. This adjusts historical prices proportionately so that they stay rationally aligned with current prices.
Adjustments for stock splits is similar, but to calculate the factor you just have to divide the number of shares after the split by the number of shares before the split. Example: A 2 for 1 split, divide 1 by 2. The factor is 0.5.