Sunday, November 13, 2011

Log Chart vs Linear Chart

Why do I mostly use “Logarithmic (Log) Charts”? The standard chart type (Linear Charts), on which a given distance always represents the same absolute change in price (unlike on a logarithmic chart, where a given distance always represents the same percentage change in price). In other words, the distance from 1 to 10 is the same as the distance from 10 to 100 on a logarithmic chart, but the latter distance is ten times greater on a linear chart. Let’s compare.

Unlike day traders who mostly look at short time periods 5, 15, 30, hour charts. Log charts do them no good since time period is too short to matter.  I look at longer time periods for bigger percentage moves in my investments. Which greatly reduces my trading fee's which boosts my total yearly returns. Log Charts give me and institutions a much clearer picture of possible total percentage returns on investment. This does not mean I will not take profits intraday or in a 2 to 3 day period to reduce risk and pocket some gains.

Longer time period weekly Charts are more powerful and greatly reduce erratic intraday price action. This does not mean you cannot drill into shorter time periods to fine tune an entry or exit in a position.

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