What is Historic Pricing?

When a business wants to forecast its future sales, it often relies on past sales data to identify trends and seasonality. Similarly, traders and investors make use of the historical pricing and price movements of assets to identify trends or patterns that might help them in predicting the future. In this article, we will dive deep into what historic pricing is and how it is used in the financial landscape.

What is Historic Pricing?

Historic pricing is an essential component of technical analysis. Historic pricing involves the study of the past prices of a financial security. It is not only helpful in analysing price movements and trends, but it can also help determine the value of an asset based on the previous valuation.

Historic pricing provides valuable insights to traders and investors. By studying the past price data of a security, recurring patterns or trends can be identified, which can help in the decision-making process.

Importance of Historic Pricing in Technical and Fundamental Analysis

The study of historical prices plays a significant role in technical analysis. Several indicators take into account the price movements of an asset over a specific period to generate signals. Further, historical prices help traders analyse how the price of a security has moved in the past.

Traders can identify any past or ongoing trends with the help of historical prices. One can also spot recurring patterns or how the price of a security reacted to an event in the past. By analysing the historical price data, traders and investors can gauge how the price will perform in the future and make informed decisions accordingly.

In addition to technical analysis, historical pricing is also helpful in fundamental analysis. Although fundamental analysis mainly focuses on the company’s financials and broader market trends, historical pricing is often used in various contexts.

The historical prices of an asset can be used in fundamental analysis to compare the valuation of a security in the past and its current valuation. This can help spot any trends in the valuation or if a company is overvalued or undervalued.

Further, historical prices of multiple assets can also be studied to find any correlation between the prices of two or more assets.  

How to Access Historical Prices

If you want to study historical prices, you need to access them from reliable sources. There are several platforms through which you can get the historical prices of a security.

•       Typically, the stock exchanges have the historical price data of stocks and other listed instruments. In some cases, the volume data may also be provided, which can help enhance your analysis.
•       Trading platforms, charting tools, and brokers may also provide historical price data.
•       If you’re using a computer program or algorithm to trade and conduct technical analysis, you can utilise an API that automatically requests and records the historical price data for a specific time period.
•       In most cases, historical price data is available for free. However, some platforms may charge for the historical data or API.

Uses of Historic Pricing

Historic pricing is advantageous for several reasons, making it a crucial part of technical and fundamental analysis. Here are some of the key use cases of historic pricing:

Forecasting

Historic prices play a vital role in forecasting. By studying the past price performance, one can spot trends or patterns that can help predict the future.

For example, after analysing the historic prices of a stock XYZ, a trader noticed that the stock underperformed during periods of economic contraction. Based on this pattern, the trader can make an informed investment decision expecting the stock to perform similarly in the future.

Backtesting

Backtesting is the process of testing an investment or trading strategy against past data. By backtesting a strategy against historical prices and past data, you can see how the strategy performed. The past performance of a strategy can be used to estimate how it will perform in the future.

Valuation

Valuation is a key part of fundamental analysis and helps determine whether a security is undervalued or overvalued. Key ratios such as the price-to-earnings and price-to-book ratios can be benchmarked against the market to value a company. Historic prices can be used to calculate the past valuations of the company and spot how the valuation of the company has trended over time or in different market situations.

Key Metrics to Know While Using Historic Pricing

OHLC: The Open, High, Low, Close (OHLC) refers to the opening price, highest price, lowest price, and closing price of a security during a specific time period.

VWAP: The volume-weighted average price (VWAP) is a technical indicator that represents the average traded price of a security.

Volume: Volume is the total quantity of a security traded within a specific period. A higher volume indicates a higher quantity and vice versa.

Price Bands: A security’s price band refers to a price range within which it can be traded. A price band has a lower price and an upper price.

Historical Prices vs. Real-Time Data

Historical prices and real-time data are both highly important but serve different purposes. Historical prices refer to the past price data of a security and help forecast future trends or spot patterns.

Meanwhile, real-time data refers to the live market data and is continuously updated. Real-time data gives the current picture of a security and helps traders access the latest data and execute trades. While real-time data is useful for intraday trading and managing risk, historical data is more useful for forecasting, backtesting, and valuation analysis.

Limitations and Data Accuracy

While historical pricing can be beneficial, there are certain limitations that one needs to be aware of. Although historical data can be indicative of the future, this may not always be the case, and the security’s future performance may vary. Moreover, historical pricing does not take into account any external factors that impact the performance of a security. It’s best for investors and traders to use historical data along with real-time data and other tools for optimum analysis.