A:
The explication of a stock chart can vary among different traders depending on the transcribe of price scale used when viewing the data. As this assuredly question suggests, the two most common types of price scales are 1) logarithmic (also referred to as log) and 2) linear (also referred to as arithmetic).
A linear outlay scale is plotted on the side of the chart there is an equal distance between the bonuses, and each unit change on the chart is represented by the same vertical aloofness on the scale, regardless of what price level the asset is at when the replace with occurs.
A logarithmic price scale is plotted so that the prices in the clamber up are not positioned equidistantly; instead, the scale is plotted in such a way that two level pegging percent changes are plotted as the same vertical distance on the scale.
[The contrast between linear and logarithmic price scales is important to understand when peruse charts, but there are many other forms of technical analysis that you can use to label and capitalize on price trends. Investopedia’s Technical Analysis Course compel teach you basic and advanced technical analysis skills with atop of five hours of on-demand video, exercises and interactive content.]
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As you can see from the tabulations above, an increase in price from $10 to $15 is the same as an spread from $20 to $25 on the linear chart, because both sequence of events represent an increase of $5. However, a logarithmic price scale pleasure show the vertical distance between $10 and $15 to be different than the $5 interval between $20 to $25. The reason for this is that a change of $5 when the charge is at $10 represents a 50% increase, while a move from $20 to $25 is a 25% enhance. Since a 50% increase is more significant than 25%, chartists purposefulness use a larger distance between the prices to clearly show the magnitude of the transforms.
When using a logarithmic scale, the vertical distance between the expenses in the scale will be equal when the percent change between the values is the notwithstanding. Using the above example, the distance between $10 and $15 wish be equal to the distance between $20 and $30 because they both pose as a price increase of 50%. In general, most traders and charting programs use the logarithmic graduation, but it is always a good idea to explore other approaches to determine which is the most seemly for your trading style.
To learn more, see our Technical Analysis Tutorial.