Beware of Charts Which Have Not Been Adjusted for Dividends

by TraderMike about 1 year ago

Most of the time it doesn't make much difference it a chart has been adjusted for dividends or not.  That changes when a company issues a large dividend -- which happed with ZIM last week.  If you adjust for dividends (as one should!), the chart shows that the stock is at multi-month highs.  If the chart was not adjusted, the charts shows a big gap down last week and shows a stock that's trying to recover that gap. 

Here's how it looks on TradingView, which doesn't adjust for dividends:
ZIM_TradingView.png 138 KB
and here's the Yahoo Finance version (also not dividend-adjusted):
ZIM_YahooFinance.png 108 KB
These dividend-adjusted charts show the true story of ZIM.  From
ZIM_StockCharts.png 268 KB
And here's the SwingTradeBot chart (which you can see if you use the pop-up / hover charts on scan results & on the full-page of charts pages):

ZIM_SwingTradeBot.png 155 KB
Importantly that dividend-adjusted data is what's used to determine all of SwingTradeBot's signals, the trend table, etc.  As you can see, on the non-adjusted charts, ZIM is below its 20 & 50-day moving averages but in actuality it's well above those lines.

P.S. You can also see the SwingTradeBot chart by hovering (or tapping on mobile device) on the little chart icon after "Basic Chart" which is under the TradingView Chart on each stock's page.  See below:

STB_hover_icon.png 306 KB

TraderMike about 1 year ago

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 though such a split is generally considered a neutral event, an unadjusted chart would contain lots of bearish signals.

In order to prevent these kinds of misleading signals from appearing on our charts, we adjust all the historical data prior to the event. In the case of a 2-for-1 split, we divide all of the historical prices for the stock by 2, then 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 - that is, the forces that Technical Analysis attempts to identify.

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