Discussion in 'Technical Analysis' started by jnhighland, Jul 31, 2005.
Is a Log Scale better than an Arithmetic when maaking charts? Why?
For shorter-term trading, an arithmetic scale is fine. For the longer-term, give consideraion to using a log scale. It can "compress" parabolic movements and give a better representation of larger trends.
A log chart allows you to see x % change as the same distance on a chart. An arithmetic one does not.
Here's log, and here's arithmetic.
Notice how on the arithmetic the jump in Jan 2004 onwards looks much more exagerated than the Oct 2002 jump. This is misleading since on a % basis the Oct 2002 rise was much larger.
Dont take this the wrong way: this is a very basic element and it would be more beneficial to you to learn things like this on your own (try answering your own question by formulating a theory, etc.)
thanks for the feedback guys.
I've always been a believer of the Socratic Method that's why I tend to make a lot of questions.
I only look at log(Price) when it's over long time periods and there's a dramatic change
... then I get to see more detail
One attractive feature of a log chart is that it visualizes volatility: a (almost) straight line on a log chart implicates zero (low) volatility. This is independent of the angle of the "line". Gummy's GE logchart shows that this has been a relatively low volatile stock most of the time.
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