Evaluating Stock Charts: Logarithmic vs Linear / Arithmetic Charts?
★ SUMMARY ★
What’s the difference between logarithmic vs. linear charts?
When we look at the arithmetic scale, we can see that everything is proportional, the distance between the hash marks is the same, all the way up to the last number of the scale.
On the other hand, if we analyze the logarithmic scale, you can see that as we go to the higher numbers, the distance between the numbers starts to get smaller and smaller.
When it comes to the stock market, arithmetic charts are also known as linear charts, which means the price value on the charts are the same distance or length, whereas the logarithmic charts stretch the scale as it goes up and up.
Which one is better?
Logarithmic charts are great for stock charts that are over-extended or explosive. Personally, I look at the arithmetic charts more than 99% of the time. I do use logarithmic charts from time to time, if a stock chart is explosive. However, this is rare and not very often.
In this video, we’re going to analyze some stock charts, where you’ll be able to see some examples of the difference between the arithmetic vs. the logarithmic scale in the real life.
Posted at: http://tradersfly.com/2016/09/logarithmic-linear-arithmetic-charts/
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Thanks Sasha!
Crypto charts are perfect example of when to use the LOG Scale
A long term investor/trader should only and I repeat ONLY look at logarithmic charts. Percentage gains and loses are all that matters. From 2 to 4 There is %100 gain while from 102 to 104 gain is less than %1. Difference is 2 nevertheless
Okay, but what is the purpose of logarithmic vs Arithmetic ? :/
You can’t say the scale gets tighter and tighter then two seconds later say the scale gets strectched. I my mind these are two contradicting concepts making learning from you to be instantly frustrating.
1.5 speed does the trick….
A-RITH-MA-TICK
Do you know Metatrader.4 Platform using which one the Linear or the Logarithmic ?
Million$ tutorial
Sasha thank you for explaining that I would never have known what Logarithmic / Arithmetic charts were. Can you put Lifelock in one of your charts?
In theory money grows exponentially, companies grow exponentially, the economy, and inflation, etc. If you put something that grows exponentially on a logarithmic chart, it converts the exponential trend into a linear trend, so that straight line tools do a better job representing the trend.
However, in practice stock movement isn't exponential, at least not to the point where a logarithmic scale helps. In practice, price action is determined by buyers and sellers, and most buyers and sellers use linear charting to make their decisions. So naturally, the price action follows linear chart patterns.
:Love it!! Great question great answer