Skip to main content
Siddhartha Kumaran
More curious than the cat!
Asked a question 11 months ago

Is Log Scale better than Arithmetic scale for charting?

Join FYERS Community to pick others' brains on Trading/Investing

It is nothing like better. Just know the usage and where to use it. I basically Use log scale on monthly or weekly time-frame as Log scale shows two equivalent price changes that are represented by the same vertical changes on the scale and  I use  Arithmetic scale on Daily chart or for lower time-frame.

Great question! The default charting view across all platforms uses the arithmetic scale to plot prices and hence, most people don't know any other way. The arithmetic scale is good only for short-term time periods wherein the price movements are not exponential. If one is trying to analyze stocks over the long-term, generally the price changes are very large. In such cases, arithmetic scale visually distorts the performance and makes viewers think that the recent performance is far greater than in the past due to the steepness. This may not be true though. For example, let's say a stock moved from 1 to 100 over a period of 15 years as shown below. The chart on the arithmetic scale will look as if the stock has performed best from year 11 to 15. But in reality, the best performance came in the 1st 5 years when the stock rallied 900% but because the absolute value was smaller, it visually distorts our perception of it's relative performance. For this reason, log scale makes sense as it represents the percentage change on the chart instead of the absolute values. 

Period (In Years)Price% Change
1 to 51 to 10900
6 to 1011 to 3072
11 to 1531 to 100222