DEFINITION of 'Logarithmic Price Scale'

Logarithmic price scales are a type of scale used on a chart that is plotted such that two equivalent price changes are represented by the same vertical distance on the scale. The distance between the numbers on the scale decreases as the price of the asset increases. After all, a $1.00 increase in price becomes less influential as the price moves higher since it corresponds to less of a percentage change.

Also, referred to as a log scale. The alternative to a logarithmic price scale is known as an arithmetic price scale.

BREAKING DOWN 'Logarithmic Price Scale'

Logarithmic price scales are generally accepted as the default setting for most charting services, and they're used by the majority of technical analysts and traders. Common percent changes are represented by an equal spacing between the numbers in the scale. For example, the distance between $10 and $20 is equal to the distance between $20 and $40 because both scenarios represent a 100% increase in price.

These charts differ from those using arithmetic price scales, which look at dollars instead of percentage points. On those charts, the prices on the y-axis are equally spaced rather than becoming increasingly condensed as the asset price moves higher.

Logarithmic price scales tend to show less severe price increases or decreases than arithmetic price scales. For exmaple, if an asset price has collapsed from $100.00 to $10.00, the distance between each dollar would be very small on an arithmetic price scale, making it impossible to see a big move from $15.00 to $10.00. Logarithmic price scales solve these problems by adjusting the prices based on the percent change. In other words, a significant percentage move will always correspond with a significant visual move on logarithmic price scales.

Arithmetic price scales can be helpful when you're analyzing assets that aren't as volatile since they can help you visualize how far the price must move to reach a buy or sell target. However, it's usually a good idea to view arithmetic charts on a large screen to ensure that all of the prices are viewable.

Example of a Logarithmic Price Scale

The following chart shows an example of a logarithmic price scale for the NVIDIA Corp. (NVDA):

Stock Chart Showing Logarithmic Price Scale

In the above chart, you can see that the space between $20.00 and $40.00 is much wider than the space between $100.00 and $120.00, despite the absolute difference being $20.00 in both cases. This is because the difference between $20.00 and $40.00 is 100 percent, while the difference between $100.00 and $120.00 is just 20 percent.

  1. Linear Price Scale

    A linear price scale is a type of scale used on a chart that ...
  2. Scale In

    Scale in is the process of purchasing shares in increments once ...
  3. Scale Order

    A scale order is a type of order that comprises several limit ...
  4. External Economies Of Scale

    External economies of scale are the lowering of a firm's costs ...
  5. Sliding Scale Fees

    Sliding scale fees are a type of tax or cost that may change ...
  6. Euler's Constant

    The limit of the sum of 1 + 1/2 + 1/3 + 1/4 ... + 1/n, minus ...
Related Articles
  1. Insights

    Explaining Minimum Efficient Scale

    Minimum efficient scale is the smallest amount of production a firm can achieve while still taking full advantage of economies of scale.
  2. Trading

    U.S. Steel Stock at Cusp of Historic Breakout

    U.S. Steel has rallied back to a long-term trendline that could yield a major breakout in reaction to infrastructure legislation or steel tariffs.
  3. Trading

    Effective Risk Control With Scaling Trading Strategies

    Scaling strategies allow for greater risk control than simple entries or exits, letting traders seek the most advantageous prices available.
  4. Investing

    Explaining Economies Of Scale

    Is bigger always better? Learn about the important and often misunderstood concept of economies of scale.
  5. Trading

    Apple Stock: Traders Should Wait for $170 to Buy

    Hidden long-term resistance suggests that Apple shares will turn lower and fill the May gap between $169 and $174.
  6. Trading

    The Right Way to Set Up Your Trading Screens

    Well-organized trading screens can speed up complex decision making.
  1. What are the differences between internal and external economies of scale?

    Take a deeper look at the differences between internal and external economies of scale, and learn why internal economies ... Read Answer >>
  2. What's the difference between diminishing marginal returns and returns to scale?

    Understand the main differences between the law of diminishing marginal returns and the concept of returns to scale through ... Read Answer >>
  3. What is a diseconomy of scale and how does this occur?

    Take a deeper look into diseconomies of scale, the economic phenomenon that can make companies less efficient as they become ... Read Answer >>
  4. What's the difference between arithmetic and geometric averages?

    An arithmetic average is the sum of a series of numbers divided by how many numbers being averaged. However, geometric average ... Read Answer >>
  5. What is the Rule of 72?

    The "Rule of 72" determines roughly how long an investment will take to double, given a fixed annual rate of interest. It ... Read Answer >>
Hot Definitions
  1. Futures Contract

    An agreement to buy or sell the underlying commodity or asset at a specific price at a future date.
  2. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  3. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  4. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  5. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  6. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
Trading Center