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Posted on 7/7/22 at 8:19 am to Diseasefreeforall
In the same way that chart doesn’t really show you how much it has dropped, it doesn’t really show you how big of a gain it had. I think it’s a fair chart to look at it, especially if you’re trying to gauge how “cheap” it is right now. The non-log chart suggests HEX is super cheap, but the log chart more accurately shows it’s not so cheap when you consider where it started from.
Posted on 7/7/22 at 8:31 am to Diseasefreeforall
quote:
There are two main reason’s you’ll want to utilize a logarithmic scaled chart when analyzing the market. First, if the market is volatile, then you will see huge market swings in a relatively short period of time. Those wild swings can be difficult to analyze on a linear chart.
For example, if bitcoin were to begin correcting another 5,000 points in a short period of time, people would look at that and talk about how volatile the market is. The crypto market is volatile, but a 5,000 point move today in bitcoin that is trading near $60,000 is not the same impact as when it was trading near $10,000 per coin.
A log scale price chart will smooth out those volatile readings to help place them on an “apples to apples” comparison.
The second reason to use a log chart is when you are analyzing a long historical period. For example, if you were to analyze the 10-year price chart for Facebook stock, the price increase has been so dramatic that it only makes sense to look at it on a log scale.
The logarithmic chart standardizes the size of the moves over large price movements and large time horizons so you can easily compare advances and corrections.
When is arithmetic scale useful?
There are times when a linear, or regular chart is useful to use. The first instance would be for day traders. Day traders are reviewing shorter chart time frames and therefore are assessing only the recent trends over the past few days. As a result, the arithmetic scale works fine as the price change won’t be as dramatic.
Additionally, the arithmetic scale is useful when analyzing forex charts. Since trade flows are still exchanged in fiat currencies the relative value of those currencies doesn’t change dramatically from year to year.
As an example, EURUSD is the largest traded currency pair. So far in 2021, the exchange rate has fallen about 7% (which we forecasted on January 6, 2021 in a live webinar). Seven percent in 10 months for FX is a nice trend. FX moves are smaller, so you can use a linear chart with it.
Which price scale is better for crypto?
Logarithmic scale charts are better for analyzing crypto trends. Crypto markets are notorious for monster trends and volatile markets.
Therefore, analyzing the log charts makes for a cleaner analysis most of the time.
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