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.
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