# Linear vs. Log charts - When to use each?



## Whiskers (11 January 2008)

I'm a relative novice to investing/tradeing charting and am sometimes confronted with the problem of which to use.

Generally I use linear as most of my charting is short term. 

It seems to me that the dollar and percentage numbers are the same whichever you use, but there can be a significant difference in charting trendlines over time.

What are the pro's and con's of linear and log charting?

When should each be used and why?

What do people use?


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## tcoates (11 January 2008)

*Re: Linear v Log charts - When to use each.*

I could write an explanation but what I would say is perfectly written here....

http://www.fool.com/foolfaq/foolfaqcharts.htm

and

http://www.incrediblecharts.com/technical/trendlines.htm

I use linear charts mostly due to the timeframe that I am looking at.

Tim


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## GreatPig (11 January 2008)

*Re: Linear v Log charts - When to use each.*

I think log is more useful over larger price moves, and for small price moves there's little difference between the two.

So I always use log. Saves switching between them all the time.

GP


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## Whiskers (11 January 2008)

*Re: Linear v Log charts - When to use each.*

Thanks for that tim.

I understand the basic mechanics, (as quoted from Incredible Charts) but the author is not decisive either.

I am starting to think I should do the same as you GreatPig. 

By way of example the XAO is currently close to the long term trend on the log but can fall back to the Aug lows and still be on the linear trendline. 

POG is another case in question. It has about reached the linear peaks trend line but still short of the log scale line. 



> *Log or Normal Scale?*
> There has been much debate on the Chart Forum over the years as to whether trendlines should be drawn on log scale or normal scale charts.
> 
> The case for log scale has been summarized by Alsoran as:
> ...


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## motorway (13 January 2008)

*Re: Linear vs Log charts - When to use each?*



Whiskers said:


> I'm a relative novice to investing/tradeing charting and am sometimes confronted with the problem of which to use.
> 
> Generally I use linear as most of my charting is short term.
> 
> ...




Thing about retracements ( only as ONE example )

Their geometrical appearance
On a log chart 50% is not at a halfway point

Important point when dealing with the "look" of a chart

eg have a look at CNP as a log chart or a linear chart
over a decent time frame ..

Look at the suggestive  danger of the retracement from the top
Before the DROP.. ( ie do not load the last drop but just until )




> These deviations occur because the starting point of the chart determines the graphical appearance of a log chart, but not with a linear chart





No matter from how far up
a 50% retrace will appear at the measured halfway point on a linear chart

This is not true with a log chart

So Know your tools
and what you want to achieve.

motorway


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## theasxgorilla (13 January 2008)

*Re: Linear vs Log charts - When to use each?*

For actual technical analysis purposes the use of log charts IMO can play tricks on your mind.  But on the flip side of that, for longer term investing the use of linear scale charts can also play tricks on your mind.

A stock that doubles and then doubles again, on the second doubling will traverse 200% further in price units during the second doubling.  That can be difficult to take into consideration when you are peering at chart where the second move is double the first, but in % terms was exactly the same.  

As the price action doubles and doubles again (Peter Lynch: multi-baggers) I think human nature is to feel that it looks increasingly expensive.  That can make it difficult to buy at high price levels. Yet there is the adage touted by many pro's which goes something like: it's never too high to buy.  Log charts can help put into perspective what a price unit move would look like in % terms...and as Motorway points out, it can help identify retracements as well as advances, thereby putting into perspective the relative depth of a pull back.

ASX.G

PS. As a related topic, though not often discussed as it has arguable validity is the 3rd dimension of actual price.  X axis is time, Y axis is price units and Z axis is price value.  You may convert RIO to a log scale and try to put into perspective it's advance from $25 to $50 and $50 to $100, but what is the likelihood of such a stock doubling again to $200?  Is there a psychological implication for having such an excessive price?  Thick of Nick Radge or Tech/a's recommended price filters of stocks less than $10 or $5 for identifying the price levels where growth stocks are more likely to exist.


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## GreatPig (14 January 2008)

*Re: Linear vs Log charts - When to use each?*



theasxgorilla said:


> try to put into perspective it's advance from $25 to $50 and $50 to $100, but what is the likelihood of such a stock doubling again to $200?



I think it's just a matter of people getting used to those sorts of figures. Almost nothing was over $100 until recently, but that hasn't stopped RIO trading and continuing to rise.

And of course some companies will do a split to keep the actual dollar figure in the "normal" range for the ASX.

Cheers,
GP


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## Stormin_Norman (14 January 2008)

*Re: Linear vs Log charts - When to use each?*



Whiskers said:


> I'm a relative novice to investing/tradeing charting and am sometimes confronted with the problem of which to use.
> 
> Generally I use linear as most of my charting is short term.
> 
> ...




log charting is used for judging exponential trends. ie when a bubble will burst, or a bust will turn. it will show the slow down in demand/rise in demand more clearly then a linear chart which shows data raw.

on a graph a linear char is a straight line, and a logarithmic line is a curve. therefore when wanting to look at how the slope of a line changes use logarithmic. if you want to get a simple straight trendline of best fit between all the points, then use linear. 

i prefer to look at real numbers, but think marginally.


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## howardbandy (15 January 2008)

*Re: Linear vs Log charts - When to use each?*

Greetings --

If you are considering the equity curve, and want to compare annual percentage gains, you will want a log scale for the account balance.

A constant percentage increase is a straight line on a log scale.

Thanks,
Howard


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## theasxgorilla (15 January 2008)

*Re: Linear vs Log charts - When to use each?*



GreatPig said:


> I think it's just a matter of people getting used to those sorts of figures. Almost nothing was over $100 until recently, but that hasn't stopped RIO trading and continuing to rise.
> 
> And of course some companies will do a split to keep the actual dollar figure in the "normal" range for the ASX.




You're spot on, for the time being.  We're fortunate that not that many companies actually split on the ASX.  I remember Metal Storm splitting way back during the dotcom days, I believe because they'd mistakenly listed at $3.00ish and realised that relative to their true market cap and perception as a growth stock that was too high.  And so they did a 6-for-1 split and brought their trading price down to 50-60 cents.  Mind you this was pre-2000, quite a while ago now, and I do think that people's inbuilt perception about what represents a cheap growth stock will shift upward with time.  How to measure it?  You can't.


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## Wysiwyg (24 March 2010)

*Re: Linear vs Log charts - When to use each?*



theasxgorilla said:


> *A stock that doubles and then doubles again, on the second doubling will traverse 200% further in price units during the second doubling.  That can be difficult to take into consideration when you are peering at chart where the second move is double the first, but in % terms was exactly the same.  *
> 
> *As the price action doubles and doubles again* (Peter Lynch: multi-baggers) *I think human nature is to feel that it looks increasingly expensive.* * That can make it difficult to buy at high price levels.* Yet there is the adage touted by many pro's which goes something like: it's never too high to buy.  Log charts can help put into perspective what a price unit move would look like in % terms...and as Motorway points out, it can help identify retracements as well as advances, thereby putting into perspective the relative depth of a pull back.
> 
> ASX.G





> Stormin_Norman
> if you want to get a simple straight trendline of best fit between all the points, then use linear.




I used the search function and found exactly what I was thinking about.  Although still undecided. 
This arithmetic as alternative to semi-logarithmic scaling issue has me in two minds of which to use for tracing trend lines. 

My example shows the arithmetic trend line extended from two price lows. The third oval (arrow on semi-log chart) shows the trend line was honoured on the arithmetic scale chart.
On the semi-logarithmic scale chart, it is obvious the trend line cannot be traced from the first price low. Hence the trend line on a semi-log was not used.

I have never considered this before but it seems *arithmetic scale charts are* *used by the majority* and not only for tracing trend lines.  Is this true???


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