When I’m going through a testing process to check for a new update, my go to screen is “Close > 444”. This seems all fine and well, and will return companies that have a close greater than 444, but, believe it or not, this usage of “close” is incorrect.
Within the Equities Lab system, there are two types of close – Close, and RawClose.
· Close is the split adjusted closing price
· RawClose is the unadjusted closing price.
This differentiation is important when you are looking at a static line using close as a parameter.
It depends on the screen. Let’s use the original example, Close > 444.
Here are the results. Included are some of the biggest names in each industry – all of whom have a closing price greater than 444.
As someone who has seen this screen more times than I can count, I’m going to spoil the results for you, it goes down consistently losing most every penny. Because of this, we are going to run this screen as a short strategy and add two little tabs.
Once that’s done, it’s time to backtest the “strategy”.
Fantastic! This screen performs so well that it’s almost tempting just to jump the gun and start shorting companies with exceedingly high closing prices. You’re making money in the recession and even beating the market consistently outside of that.
Sadly, these results are wrong. If you go out and short these companies using this strategy, you are basing your investments off of a false line of the Equihack language and your screener will fall apart.
Well, badly enough that, at the end of the day, you’ve lost money by shorting companies with extremely high share prices. You still make a bunch of money in each of the most recent recession points, but you lose money every other year.
Close is best used when an argument is more of an equation, like below.
This line is asking for the change of close, returning a percentage, over the past year, and compares that to the change of close 2 years ago, also returning a percentage. These two values are going to be pretty much the same whether you use Close or RawClose as it’s looking for a percentage of change rather than the exact value of close.