backtesting question regarding Adjusted Close Price

[sbbi98]

Hi,

I am trying to do some backtesting on a stock based on its close price. I understand Adjusted Close Price is better for this purpose because it considers dividend and split. Here is my question:

For example, say, the Jan 4th's close price is $10.5, and Jan 3rd's close price is $10, so the daily return was 5% on 1/4. On 2/1, there was a dividend of $0.5 and it is the only dividend between 1/4 and now. As the result, the Adjusted Close Price of 1/4 is $10, and the Adjusted Close Price of 1/3 is $9.5. So if I calculate the daily return based on Adjusted Close Price, it would become 5.26% (i.e. 10/9.5-1). That means the return calculated based on Adjusted Close Price in backtesting deviates from the real world. If my strategy is to sell the stock when it increases more than 5%, the backtesting will sell, but in the reality i will not sell.

I am very confused.. Can anyone enlighten me and share his approaches/opinions?

Thank you!

[NinjaTrader_Brett]

Hello,

Thanks for the forum post and welcome to the NinjaTrader support forums.

The best thing to do is to update the chart and apply and offset to it when a split/dividend occurs so that it does not alter your trading system.

To do this when connected to your datafeed provider goto Control Center->Tools->Instrument manager->Edit the instrument you want to adjust for then goto the MIsc tab and on the bottom select the update splits and dividends.button.

Let me know if I can be of further assistance.