Distinguishing Real-time from End-of-Day cum Historical Prices for Stock Analysis Accuracy

The ability to understand the difference in the function and application of real-time from end-of-day cum historical price charts at the stock exchange, will result in the competence to avoid erroneous or even fatally wrong buy-sell decisions.
Superficially both types of charts appear very much the same, so a thorough understanding about the process leading to the formation and succeeding development of stock exchange prices would be necessary.
The data source also needs to be verified for clarity regarding its origin and accuracy, so the application and utilization would not be done carelessly and violate intellectual property rights.

Price for new stocks
During the promotion of new shares to be issued, there are three parties executing a primary role, which would be the issuer, the underwriter and the regulator or stock exchange supervisory board. Other institutions are in fact also involved like a public accountant, notary, property appraiser, printing factory, etc. occupying a secondary or supporting role.
The issuer is in need of additional capital for its enterprise, offering a partnership in running its business in the form of shares at some nominal value (say Rp1,000 or Rp500, currently even Rp100 per share at the local stock exchange). The number of shares to be offered to the public depends on the size of the capital needed for expansion of the issuer's business. Let's assume that the need is for Rp100 billion, then the number of shares at a nominal value of Rp500 would be 200 million. Naturally the stock price would not be set at the nominal value, because the business being undertaken is considered to be looking forward to a most promising future, additionally it has established a good reputation, is in possession of various patents, trade marks, etc. all considered to be intangible assets.
Because the issuer is generally not in the financial industry, a good relationship with the investor society cannot be set up in a minimum of time, so the need of an underwirter is imperative. It is the underwriter's task, being well established in the financial world, to draw the confidence of investors and future share holders, that the stocks offered indeed represent a bonafide enterprise. Because the underwiter earns a fee in a certain percentage of the entire new stocks sale proceeds, the offering price would be determined together with the issuer as published in the prospectus to be distributed among interested parties or future investors.
Such an offer of new stocks to the public is called an Initial Public Offering (abbreviated IPO) and the excess of the IPO price over the nominal value is called agio (a remainder from Dutch terminology) or premium. And it is this premium which in the future will have an influence on the price of the stock, when sometime part or the whole of it is being returned to the investors who have become shareholders by then, in the form of additional new shares called a bonus, because the issuing public company is not interested or unable to pay dividends and yet does not want to disappointed them.

While the negotation between the stocks issuer and underwriter is taking place, both have also taken up contact with the stock exchange supervisory board (here known as Bapepam) responsible for ensuring that no legislation violations nor fraudulent practices are taking place related to the IPO.
After Bapepam has expressed approval, the stock exchange management should also be contacted for registration purposes (here this would be the Jakarta or alternatively Surabaya Stock Exchange), before the stocks after having been sold to the public, can be traded at the exchange. The IPO price is not reported by the stock exchange because the relevant transaction did not occur there.

Realtime prices
After registration at the exchange, trading of the new stocks may take place, usually happening at a price higher than that at the IPO because a significant number of investors have not been able to take part in the public offering, resulting in bids exceeding offers.
By means of a computer network the exchange reports further developments of the price as the result of bids and offers succeeding one another leading to closes producing transaction prices, which may happen dozens of times during each trading session for each stock found attractive by the market. Such continuous reporting is also called a datafeed.
The offers as well as bids in the datafeed can be seen at the computer screen, showing also the names of the brokers involved, and as soon as a transaction occurs the resulting price will be reported immediately and this is designated as the realtime price.
The brokers entrusted with the buy-sell orders, are naturally also part of the computer network, and some traders prepared to follow the stream of offers and bids, should place transaction orders timely through their offices found to be ever alert in the system, for execution as specified.
Hence the realtime price is produced instantly and will change as soon as the next transaction occurs during the day. The screen will merely show figures and letters, they are therefore also called raw data because of not being processed further into a chart, and expressly so as in such a format they would be meaningless from a historical point of view, much less insignificant for analysis purposes even for a short term application.

It is clear from the sequence of the process involved in the formation of realtime prices, that market orders should be entered into the computer system immediately after an anticipated transaction price has appeared on the screen. Hence the brokers authorized to do so, occupying seats at the exchange floor, should be ever alert to the second, perhaps split of a second under pressure of a head-over-heels competition. The order entry feature exclusively reserved for brokers, turns the system into what is designated as the Jakarta Automated Trading System (JATS). In such a situation certainly not much time would be available to do some analyzing before taking an important decision to be followed by an immediate entry into the system.
The analysis should be done beforehand and the first instant that realtime information can be found in an orderly manner, without all the bid and offer figures, sorting out merely the opening, highest, lowest and closing transaction prices as well as volume, is the end-of-day report as published by data providers in the same evening or the next morning. Further processing for such end-of-day prices to display a chart, is still considered as a realtime product, as the historical background is still left out of the picture.
If any analysis activity can be called appropriate with the use of realtime charts, the scope would be of the intraday kind, meaning that only the previous day's end-of-day prices would be suitable for such a purpose.

End-of-day cum historical prices caused by adjustments
As explained above realtime prices serve to become a lead to the execution of market orders, hence the analysing needed to arrive to sensible decisions the orders are based on, should be done beforehand and this will make us realize the necessity of stock price preceding history as described hereunder.
As mentioned above, next to the brokers there are also data providers receiving the same information called datafeed as disseminated through the stock exchange computer network for further processing to be presented to their subscribers. For a monthly or yearly fee these individuals or firms will be able to follow the resulting charts on their computer screens. Such charts will include the time factor of a longer duration than just the previous day and it would be possible for such subscribers to analyse price moves in a more comfortable manner for more accurate results and enable them to contact their brokers to place market orders any time they like.

Up to this stage realtime and end-of-day prices will show the same charts, but the aspect and significance of preceding history can turn the latter type into historical charts too if the data provider includes the associated changes as announced from time to time, into figures as soon as they happen to be reported by the stock exchange through its announcement mechanism. Therefore the datafeed should be combined with the announcement feed as disseminated through the Internet or a BBS to produce end-of-day cum historical charts.
The changes which will affect stock prices are the actions taken by the issuer producing an alteration in the number of registered stocks. These changes are the result of stock splits, reverse splits, the issue of rights, bonuses, dividend shares and the conversion of bonds or warrants into stocks.
An increase in the volume, will cause a inverse decrease in the price if the paid-up value remains the same as in the case of splits, bonuses and the conversion of convertible bonds. A change in the paid-up value can only be caused by the issuance of new stocks originating from fresh funds like rights, dividends shares and the exercise of warrants.
Any change as mentioned above is called an adjustment and would affect the price and volume starting from what is called as the "cum-date" all the way back to the first day the stock has entered the exchange for trading. Such adjustments are done based on formulas which are beyond the scope of this writing, as some of them like the rights issue, are quite complicated. So the "cum-date" is the day an adjustment formula is to be applied to the price and volume as has been decided by the issuer and approved by the stock exchange authorities, the next trading day is called the "ex-date" to resume the normal course of actions outside the range of the adjustment formula.

Attention should be paid to the fact that realtime data providers are not obligated to provide historical adjustments unless stated expressly in the contract or agreement between them and their subscribers, yet they may claim to be providing end-of-day prices because they do so rightly.
On the other hand historical data providers automatically include all adjustments as announced by the stock exchange authorities in their end-of-day prices in order the technical analyses as performed by their subscribers don't generate erroneous signals leading to the taking of fatally wrong decisions.
Because catering to the need to adjustments is a meticulous job maintaining accuracy as required for dependability all throughout the year, the resulting compilation of historical data is an intellectual property to be honored by their subscribers, usually mentioned in the agreements with them. Normally stock exchanges do not bother to provide such historical data, because they merely issue raw information.

The distinguishing characteristic
An important and conspicuous difference between an ordinary end-of-day (actually realtime-of-the-day) and an adjusted historical databases, is the neglecting of the adjustment in the price on the cum-date at the first mentioned non-adjusted database, hence the result is a deceiving drop on the ex-date which will be picked up by the indicator as produced by technical analysis software, resulting in erroneous signals.
As a matter of fact the adjustment resulting in the theoretical price on the cum-date close as shown in the datafeed, should also be applied to the previous dates as well all the way backwards, by the data provider with the help of appropriate software. The market price on the ex-date will be shown realtime in the datafeed, it will normally be higher that the theoretical price. So we usually encounter a rise and not a drop in the price. The theoretical price is the result of the application of adjustment formulas mentioned above. So be aware when making use of a price database, make sure it is an end-of-day cum historical one!
Some underestimate the challenge of adjustment calculations and try to build their own database manually, but in the long run the human error factor will catch up leading to distrastrous results in their trading.