Logarithmic Price Scale

What Is a Logarithmic Price Scale?

A logarithmic price scale, likewise alluded to as a "log scale", is a type of scale utilized on a chart that is plotted with the end goal that two equivalent price changes are addressed by a similar vertical distance on the scale.

Understanding Logarithmic Price Scales

The distance between the numbers on the logarithmic price scale diminishes as the price of the asset increases. All things considered, a $1.00 increase in price turns out to be less powerful as the price moves higher since it relates to a lesser degree a percentage change. The alternative to a logarithmic price scale is known as a linear price scale.

Logarithmic price scales are generally accepted as the default setting for most charting services, and they're utilized by the majority of technical analysts and traders. Common percent changes are addressed by an equivalent separating between the numbers in the scale. For instance, the distance somewhere in the range of $10 and $20 is equivalent to the distance somewhere in the range of $20 and $40 in light of the fact that the two situations address a 100% increase in price.

These charts vary from those utilizing linear price scales, which take a gander at dollars rather than percentage points. On those charts, the prices on the y-pivot are similarly divided as opposed to turning out to be progressively condensed as the asset price moves higher.

Logarithmic price scales will generally show less serious price increases or diminishes than linear price scales. For instance, in the event that an asset price has fallen from $100.00 to $10.00, the distance between every dollar would be tiny on a linear price scale, making it difficult to see a big move from $15.00 to $10.00. Logarithmic price scales tackle these issues by adjusting the prices in light of the percent change. As such, a huge percentage move will constantly compare with a critical visual continue on logarithmic price scales.

Linear price scales can be useful while you're investigating assets that aren't as volatile, since they can assist you with visualizing how far the price must move to arrive at a buy or sell [target](/benefit target). Nonetheless, it's generally really smart to see linear charts on a large screen to guarantee that the prices are all distinguishable.

Logarithmic Price Scale Example

The accompanying chart shows an illustration of a logarithmic price scale for the NVIDIA Corp. (NVDA):

In the above chart, you can see that the space somewhere in the range of $20.00 and $40.00 is a lot more extensive than the space somewhere in the range of $100.00 and $120.00, regardless of the absolute difference being $20.00 in the two cases. This is on the grounds that the difference somewhere in the range of $20.00 and $40.00 is 100%, while the difference somewhere in the range of $100.00 and $120.00 is just 20%.

Features

• Logarithmic price scales are a type of scale utilized on a chart, plotted to such an extent that two equivalent price changes are addressed by similar vertical changes on the scale.
• They vary from linear price scales since they display percentage points and not dollar price increases for a stock.
• They are generally utilized for the long-term point of view analysis of price changes.