Replies to post #13444 on The TA Study Lounge

[MACDad]

Morning PolePower - It's a good question and very much open for debate. It is my preference for up to 6 month charts - but some say it is better for longer term and linear is better for short term:) Here is a bit of a blurb on the difference. I'll dig up a bit more after my coffee:)

When prices move in large percentages, trendline construction can be subjective and analysis unreliable. Logarithmic (Log) scaling overcomes this problem. Rather than simply plotting price on the vertical axis in a linear fashion, prices are plotted to indicate percentage changes. This means that the vertical distance drawn for an item that doubles in price is the same whether it goes from 5 to 10 or from 100 to 200. A linear scale would plot the same vertical distance from 5 to 10 as it would for 100 to 105.

MAC

[MACDad]

And here is a comment that negates my theory completely and states that Log scale should be used for long term and linear for short:)

Chart Scales: Charts are graphed using two common types of scales: the arithmetic or linear scale and the logarithmic scale. There doesn't appear to be any overall benefit to using one over the other; trendlines, market patterns and indicators work with both of them. However, there may be a benefit to using the logarithmic scale for long-term charts (2-3 years or more) since trendlines tend to fit better.

Arithmetic (linear): chart scale that shows equal vertical distance for each unit of price change.
Logarithmic: chart scale that shows equal vertical distance for equal percentage moves; considered by some as more effective for long range trend analysis.

[MACDad]

And while I beat this issue to death - LOL - here is some more info....

Linear/Logarithmic Scale

Linear Scale: A scale where distances on the vertical axis represent equal net changes.

Logarithmic Scale: A scale where distances on the vertical axis represent equal percentage changes.




The linear scale in the weekly chart of Microsoft (above) makes the price advances over the past five years look rounded, with nearly all of the gain occurring in the last two years.

The logarithmic scale of the same time period (below) shows a well-defined trend. In this case, scaling by equal percentage changes on the vertical axis creates a clearer picture of growth over time.