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.