What Is a Logarithmic Price Scale?
Let me explain what a logarithmic price scale is—it's a charting method that shows price changes as percentages rather than absolute dollar amounts, which allows you to visualize major price movements more easily.
You might also hear it called a 'log scale.' It's plotted so that two equivalent price changes are represented by the same vertical distance on the scale.
Key Takeaways
- Logarithmic price scales are used on charts where equivalent price changes show as the same vertical distance.
- They're typically for long-term analysis of price changes.
- They differ from linear scales by displaying percentage points, not dollar increases for a stock.
Understanding Logarithmic Price Scales
On a logarithmic price scale, the distance between numbers decreases as the asset's price increases. That's because a $1.00 price jump matters less at higher prices—it represents a smaller percentage change. The alternative is a linear price scale.
Most charting services default to logarithmic scales, and that's what the majority of technical analysts and traders use. Common percent changes get equal spacing; for instance, the gap from $10 to $20 matches the gap from $20 to $40, both being a 100% increase.
This is different from linear scales, which focus on dollars and space prices evenly on the y-axis, getting more condensed at higher prices.
Log scales make price increases or decreases look less extreme than on linear ones. Say an asset drops from $100 to $10—on a linear scale, the distances between dollars at the low end are tiny, hiding big moves like from $15 to $10. Log scales fix this by adjusting for percent change, so a big percentage move always looks significant visually.
Linear scales can be useful for less volatile assets, helping you see how far prices need to go to hit targets. But view them on a large screen to see all prices clearly.
Logarithmic Price Scale Example
Take a look at this chart example for NVIDIA Corp. (NVDA). In it, the space between $20 and $40 is much wider than between $100 and $120, even though both are $20 differences. That's because $20 to $40 is a 100% jump, while $100 to $120 is only 20%.
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