The difference between adjusted and unadjusted charts in technical analysis

Adjusted and unadjusted charts in technical analysis refer to how historical price data is presented on a chart, specifically accounting for corporate actions and other events that can impact a stock's historical prices. These adjustments are important because they help ensure that the price chart accurately reflects the stock's true performance over time. Here are the key differences between adjusted and unadjusted charts:

1. Unadjusted Charts:

   • Raw Historical Data: Unadjusted charts display the raw historical price data of a stock, including all price movements, dividends, splits, and other corporate actions exactly as they occurred.

   • Dividends and Splits: Dividend payments and stock splits are not factored into the price data. As a result, you will see gaps or drops in the price chart on the ex-dividend or ex-split dates.

   • Accuracy of Returns: Unadjusted charts provide a more accurate representation of the actual returns an investor would have received if they held the stock without accounting for dividends or splits.

   • Analytical Use: Unadjusted charts are commonly used for technical analysis because they provide a clear picture of historical price movements without any adjustments. Traders and technical analysts often prefer unadjusted data when performing technical analysis.

2. Adjusted Charts:

   • Accounting for Corporate Actions: Adjusted charts incorporate adjustments for corporate actions like dividends and stock splits. These adjustments are made to ensure that the chart displays a smooth and continuous price history.

   • Dividend Adjustments: When a stock pays a dividend, the price is adjusted downward on the ex-dividend date to account for the dividend payment. This adjustment prevents a sudden drop in the stock's price on the chart.

   • Stock Split Adjustments: In the case of a stock split, the price is adjusted proportionally to reflect the new share count and share price, maintaining the continuity of the chart.

   • Accuracy of Chart Trends: Adjusted charts are useful for assessing the stock's true price trends over time, as they eliminate distortions caused by dividends and stock splits.

   • Investor Perspective: Adjusted charts are often used by long-term investors who want to assess the total return on their investments, including dividends, while maintaining a clear view of price trends.

It's important to note that the choice between adjusted and unadjusted charts depends on your specific analysis goals. Traders focused on short-term price movements may find unadjusted charts more practical, while long-term investors seeking to assess total returns and trends over extended periods may prefer adjusted charts. Some financial data providers offer both options, allowing users to select the chart type that best suits their needs. Additionally, the type of chart you use may depend on market regulations and conventions in your region or exchange.