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----- Original Message -----
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>From:
uhehs@xxxxxxxx
To: <A
title=Metastockusers@xxxxxxxxxxxxxxx
href="">Metastockusers@xxxxxxxxxxxxxxx
Sent: Thursday, April 10, 2003 7:29
PM
Subject: RE: [Metastockusers] Re:
Logarithmic Scaling/Arithmetic Scaling
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>Thank
you Harold.
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>
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>Always
something simple, isn’t it?!
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>
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>I read
that using Logarithmic Scaling was the best option, what do you
think?
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>
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>The
following is a brief discussion of log vs linear scaling. The general
consensus is that linear is OK for short times, but then log is used.
Usually the cutoff is 1 year, and the difference below 1 year is usually
quite small.
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><FONT
size=3>Logarithmic (Percentage) Scaling
On a Logarithmic (Percentage) scale chart, the vertical spacing between two
points corresponds to the percentage change between those numbers. Thus, on a
log scale chart, the vertical distance between 10 and 20 (a 100% increase) is
the same as the vertical distance between 50 and 100. Because these charts
show percentage relationships, logarithmic scaling is also called "Percentage"
scaling. It is also called "Semi-Log" scaling because only one of the axes
(the vertical one) is scaled logarithmically.
The other popular scaling option is Arithmetic scaling (AKA linear
scaling). On charts with large vertical ranges, technicians typically use log
scaling because it results in a truer picture of the price action.
Logarithmic scaling compresses the vertical axis on charts with large
vertical ranges. Compare the two charts below:
<IMG alt=""
src="png00002.png"
border=0>Arithmetic Scaling
<IMG alt=""
src="png00003.png"
border=0>Logarithmic
Scaling
Compare the period from 1994 to 1996 on the two IBM charts above. On the
arithmetic chart, things appears to be a very quiet during that time
period with the line increasing very gradually. On the log scale chart things
look very different - the price line rises dramatically in the first two
years. Given that the stock more than doubled during that period, the
arithmetic scale chart paints a very misleading picture of the price
action.
Similarly, compare the price action during the first half of 1999. On the
arithmetic chart, this visually dramatic increase dominates the entire chart.
On the log scale chart, it is much less prominent. During that time, the price
rose from roughly 80 to roughly 140, an increase of 75%. While that kind of
increase is very nice, it is misleading to have that move visually dominate a
chart that shows an overall increase of roughly 1300%. Again, the arithmetic
chart leaves an inaccurate impression.
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