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I'm not saying it's changing the exponential nature of the market. It's just more properly displaying the data for human interpretation. Looking at a linear cha
by pembrook 10y ago
I'm not saying it's changing the exponential nature of the market. It's just more properly displaying the data for human interpretation. Looking at a linear chart of historical price data will cause you to make bad decisions.
A linear y-axis is terrible for viewing historical market data because you can't compare percent changes across historical periods. Because the price of the market has grown exponentially, any movement in 1929 for example looks like a minor blip in comparison to anything happening in present day (due to the exponential price appreciation).
On a log scale, you can see that movement in the proper context compared to 2000 and 2007.
- Sacho 10y agoSo the logarithmic scale is just an approximation of this "price appreciation" or whatever - wouldn't a better solution be to weigh the market data by it and still use a linear chart?
- fredophile 10y agoNo. Imagine a stock that's at 50 dollars today (T0). Over the next month it doubles in price and goes to 100 dollars (T1). A month after that its doubled again and the price is now $200 (T2). On a linear chart the difference in price between times T0 and T1 looks much smaller than the difference between times T1 and T2. However, an investor that bought at time T0 and sold and time T1 would have made exactly the same amount as someone that bought at T1 and sold at T2. If this was two different stocks and they had both gone up 100% in the same time frame the linear scale would make the more expensive stock look like a more impressive gain. Another way to think about it is that you don't really care if a stock moves $x. You care if it moves x%. Logarithmic scales let you visualize this more accurately.