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Problems with *stock* data back-adjustments


  • To: omega-list@xxxxxxxxxx
  • Subject: Problems with *stock* data back-adjustments
  • From: Mark Johnson <janitor@xxxxxxxxxxxx>
  • Date: Sun, 13 Jun 1999 21:46:33 -0400 (EDT)
  • In-reply-to: <199906132158.OAA25722@xxxxxxxxxxxxxx>

PureBytes Links

Trading Reference Links

Jose Pascual writes:
 %
 % So better use real futures contract data while using
 % or choosing of the 20,000 plus available securities
 % from NASDAQ, NYSE, etc... to backtest.  It should work
 % on any ...
 %

But remember that stock data HAS BEEN BACK-ADJUSTED
(for splits).  This can render backtests invalid.

Here's an example: Jeff Cooper's "5 Day Momentum Method"
only trades stocks whose price is above 50.  It's one
of the setups used by the system.

And indeed an example setup in the book is Kellogg
(stock symbol "K") on 21 July 1997.  {page 22 of
Cooper's book}  On that day Kellogg stock was
trading at 87, so it met Cooper's setup criterion
(Price > 50) quite easily.

But since then, Kellogg's stock has split.  Go look
at your stock price database --- you'll find that
it says Kellogg was at 42 on 970721.  So, in backtesting,
THE TRADE WAS NOT TAKEN.  But in real life, as demonstrated
by the chart in Cooper's book, it was.

You have just been misled by back-adjusted stock data.


--
   Mark Johnson     Silicon Valley, California     mark@xxxxxxxxxxxx

   "... The world will little note, nor long remember, what we
    say here..."   -Abraham Lincoln, "The Gettysburg Address"