V.1:5 (123-123): The Logarithmic Scale. by JACK K. HUTSON

V.1:5 (123-123): The Logarithmic Scale. by JACK K. HUTSON
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The Logarithmic Scale. by JACK K. HUTSON

Semi-Logarithmic (ratio, proportion or percentage paper) graphic rulings are used when the analyst wants to compare percentage price changes rather than absolute price changes. By plotting the logarithm of price in lieu of price itself we are able to directly compare percentage change in price at the three dollar verses the thirty dollar level. Mathematically, if there is a fixed percentage change between two pairs of prices the difference between the logarithms of the price will be equal.

When the logarithms of price rather than the actual price are graphed, a constant rise or fall in price will equal a constant profit (or loss) percentage change. It is well-documented that stock and commodity prices follow general rules of percentage directional moves and corrections. These can be followed easily using a logarithmic price scale and measured directly from the chart.

Because of the time required to calculate logarithms, it is common practice to use graph paper that has a special logarithmic scale.

The logarithmic scale graph paper allows the trader to plot prices directly without calculating the logarithm. The relation between a simple arithmetic price scale and a scale corresponding to it but prepared for plotting logarithms is shown in Example 2.

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