Hi Toofuzzy! Why log scale and not linear…
I use log scale because linear chart doesn’t make sense to me. If you look at a price range of say $120 to $127, about a 6% difference it may look like an inch on my log scale chart.
If you look at the same 6% price range at a much lower price level of say $1.88 it would look like a flat line. If you were to stretch that line to be an inch wide just like in the above range of $120 to $127, it would be about 700% price difference. It's not such an extreme and uncommon example. I study stock charts that go way back into the past where a company was priced just a few pennies. For me a linear scale chart distorts the truth.
Any newbie looking at the price axis of a linear scale chart will see a ruler/division lines and immediately associate it with a traditional ruler that measures distance. Common sense will tell them, 1 inch is the same distance no matter where you look at the ruler. They will apply the same logic to the linear stock chart. They will think if a price moves from one line to the next, it would mean a fixed amount of dollars earned or lost no matter where you look at the same unit of distance. But they will be wrong. Common sense logic cannot be applied to linear chart. Linear chart distorts reality.
As I invest money, I want to get a visual feedback or representation of how my profits or losses are growing. For me that’s the number one purpose of a price chart. A linear chart completely distorts that representation. I want to have a price chart where a 1 inch price movement here affects my account in the same way as a price movement of 1 inch there. That’s why I do all my calculations on a log scale.
Vitali
