The purpose of Log Scale Chart

The purpose of a log scale is to more clearly represent values that vary greatly in size.

For Example

An increase in price from $10 to $15 is represented by the same upward movement as is an increase between $20 and $25 on the linear chart. Both increases are $5, and the linear chart represents the price in equal segments. However, a logarithmic price scale will show different vertical movement for the changes in price between $10 and $15 and the change in price between $20 to $25. While both are the same dollar amount move, the first $5 change represents a 50% increase in the asset's price. The second $5 change represents a 25% increase in the asset's price. Since a 50% gain is more significant than 25%, chartists will use a larger distance between the prices to clearly show the magnitude—known as the orders of magnitude—of the changes.



When using a logarithmic scale, the vertical distance between the prices on the scale will be equal when the percent change between the values is the same. Using the above example, the distance between $10 and $15 would be equal to the distance between $20 and $30 because they both represent a price increase of 50%.



In general, most traders and charting programs use the logarithmic scale, but it is always a good idea to explore other approaches to determine which is the most suitable for your trading style.


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