Learn With ETMarkets: Understanding scales on charts
Technical Analysis who had introduced her to Maya, at their favourite coffee shop, her thoughts were still immersed in what she had learned earlier. Even the enticing aroma of freshly brewed coffee couldn't divert her mind from the world of stocks and charts.
With genuine curiosity, she turned to Dev and asked, «Hey Dev, I've been working with stock charts and stumbled upon something called semi-log charts. I've never really understood what they are or when to use them.
Can you shed some light on this?»
Dev replied with a reassuring smile, «Certainly, Tara! Charts are potent tools for visualizing data, and the choice of scale is pivotal. So, let's start with the basics.»
Arithmetic or Linear scale:
Dev continued, «An arithmetic scale, also known as a linear scale, is the simplest and most intuitive. It represents data in equal intervals, where each unit on the scale has the same numerical value.
For instance, a change from 1 to 2 is equivalent to a change from 1000 to 1001. In simple terms, it maintains a consistent spacing between data points.»
Tara nodded in understanding and asked, «Alright, that makes sense. But what about this 'semi-log' scale?»
Logarithmic or Log scale:
Dev explained, «A semi-logarithmic, or semi-log, scale is a bit different.
It combines two distinct scales on one chart. Typically, the horizontal axis (x-axis) remains on an arithmetic scale, while the vertical axis (y-axis) uses a logarithmic scale. We opt for this when dealing with data that spans a wide range of values or orders of magnitude.»
Intrigued, Tara inquired, «Logarithmic? That sounds a bit complex.
