What is an error in the market data?

We have mentioned many kinds of data in the previous chapter, like opening price, volume,

date etc. If you download the market data as a file you see a lot of numbers. Are these

numbers all OK? When making an investment decision based on market data it is an

important question if your market data is valid or not. Our experience says that market

data is error-free in most cases. But what if you accidentally make your decision based on

false data? What if the signal you read from an indicator is because the indicator magnified

a data error? There are many reasons for such errors: extraordinary events, human error,

badly recorded data from the past...

The answer to the question "How you can check if the market data is valid?" is simple: the

values in market data are not independent, there are relations that must apply to them.

These relations can be checked before using market data and you can be warned if there is

some problem. This does not guarantee that all values in the data are true but it is a good

way to check that the data does not contain "garbage".

Timestamp means the time of an event, like the time of a transaction or the time of a

change in the order book. Date is a kind of timestamp, too. Let's see what can be

demanded from timestamps!

Timestamps in the market data must follow each other in a rising or falling order.

For intraday data it is possible that a lot of timestamps are missing eg.: if the instrument is

not too liquid. There are stock exchanges where the trading of a stock is stopped when the

price changes too fast or an important announcement is made.

For daily data it is a natural thing that some day's market information is missing since there

are national / religious holidays and weekends. It is also possible in some countries (eg.:

Hungary) that a workweek is temporarily made 6 days long to make other holidays longer.

(If you are trading in a foreign country you should be aware of the local customs of

holidays.) These anomalies together can not cause the lack of data for more than a week. A

date must not occur more than once.

It is less likely that market data is missing for a lot of days, since data providers usually

repeat previous closing price for days where no trades have happened while the exchange

was open.

Error must be suspected when a week or two is missing from the analysis. This often

happens along with a jump in the price as seen in the figure below:

Errors like this are reported by Chartoasis.com's technical analysis software.

We have already met cases in our practice when one data provider had market data for a

day while the other did not. Our inspection revealed that the mentioned day was an officially

announced market holiday, so the provider with the missing data was right! The other

provider's data was a copy of a different day's data.