Why you should use Adjusted closing prices for Analysis

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Beginners in analysis often do a basic mistake by considering the closing prices of stocks for analysis instead of Adjusted closing price. In this post, I will explain, why you should use Adjusted closing price for any data analysis. Adjusted closing price is important especially in Technical analysis of securities.

When you download data from the internet you will often have a column Adjusted closing price in the file. First, let’s understand What is closing price and What is adjusted closing price.

Closing price: It is the final price at which a security is traded on a selected trading day.

Adjusted closing price: It is a stock’s closing price on any selected day of trading that has been amended to include any distributions (dividend) and corporate actions (Split/bonus shares) that occurred at any time prior to the next day’s open.

From the above definitions, you can understand it will be a bias to use closing price for analysis which doesn’t discount the corporate actions or distributions. So it is always recommended to use Adj. Closing price during analysis.

Also read: What is Fundamental Analysis?

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Author and Assistant Professor in Finance, Ardent fan of Arsenal FC. Always believe "The only good is knowledge and the only evil is ignorance - Socrates"
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