Instead of a unit of measure, logarithmic chart scaling shows the values proportions of the log. You may want to know what logarithmic chart scaling is, when to use it, and why long-term traders may prefer it. Therefore, it makes sense for most short-term traders to use the linear scale in their chart so as to get the purest representation of price changes. Another reason why short-term traders prefer linear chart scaling is that price quotes for stocks are shown in absolute dollars, so the scale reflects price movements in dollars. In situations where the price range is constrained within a relatively narrow range, linear chart scaling can be very useful.
Linear chart scaling is preferred by short-term traders because it is nearly identical to semi-log scaling. Linear chart scaling has been criticized by many for being ineffective, but this is not the case at all. Why do short-term traders prefer linear chart scaling? Thus, the linear chart scale is best for short-term traders, such as scalpers, day traders, and swing traders, because these categories of traders are only concerned with price movements that happen over a short time - minutes, hours, days, or a few weeks - which are relatively small most of the time.
In this situation, the trader wants to clearly see the small changes in price and know their actual value.
Linear chart scaling is used when a security price is moving within a narrow range or over a short time. This is the main drawback of using a linear chart on either a long timeframe or once the security has doubled on the chart. In this case, for instance, because ZM was cheaper between $40 and $120 in the marked-portion, the price changes look insignificant. Each time, it takes a bigger price change for the price to double again, as can be seen in the blue and purple arrows. But it represented the price doubling from $60 to $120. The price action in the portion of the chart with brown color seems static. Let’s take the linear chart of Zoom (ZM) above as an example. The situation of underrepresenting price changes that happen when security price is low (compared to the rest of the prices on the chart) and over-representing price changes when the security price is relatively high is the major problem associated with linear chart scaling. This often creates challenges for securities that have multiplied in price. In the price change of $1 to $2, the stock doubled, but in moving from $100 to $101, the stock only gained one percent. What this means is that a price change from $1 to $2 is represented just as the price change from $100 to $101. In other words, a unit precisely stands for a unit. The price spacing is equal, and the reference points along the y-axis ascend in equal increments. It plots price changes in a constant unit value such that any two price positions are equidistant from each other. Linear chart scaling uses an equal value between price positions on the y-axis. But first, let’s find out what linear scaling is. Here, we’ll discuss when to use linear chart scaling and why short-term traders prefer it. Our focus is on how the price axis is scaled. In a price chart, the price is represented on the y-axis, while the time is represented on the x-axis. How changing the chart scaling can affect some technical tools.Differences between linear and logarithm chart scaling.
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