Logarithmic vs Arithmetic Scale - I'm Confused

[Claud Cloot]

Hey guys,

I been wondering how relevant a log scale is for the long-term analysis in terms of spotting relevant trendlines that actually must be respected.

Im being indecisive about a short opportunity in ETH (Ethereum) which looks extremely bullish on an arithmetic scale and totally dried out and ambiguous on a logarithmic scale.

I'm using daily and weekly charts to draw pitchforks and spot potential breakout points over key channel support and resistance lines in combination with gann angles and fib speed and resistance fans. Of true truths the direction of a trend of a larger degree seems slurred and indistinct on both scales. I'm seeing a bearish bias on a log scale and the opposite on an arithmetic scale. Which of them is the most relevant for charting in the daily & weekly? Should I disregard the arithmetic scale because logarithmic scale gets capacity to gain more accuracy in this case? I can attach charts & snapshots if needed.

 

[barjon]

Then add in the question as to whether the data used for drawing the chart has been adjusted for dividends or not and you begin to see why lines on charts can lead you anywhere.

No trend line MUST be respected and no trend line can be considered accurate in the sense that it will be respected.

It is true that trend lines can be used as places where you will consider trading (trading opportunity) - see DbP's straight line trading thread http://www.trade2win.com/boards/trading-journals/212716-straight-line-approach-sla.html - but nothing is certain.

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[Claud Cloot]

Then add in the question as to whether the data used for drawing the chart has been adjusted for dividends or not and you begin to see why lines on charts can lead you anywhere.

No trend line MUST be respected and no trend line can be considered accurate in the sense that it will be respected.

It is true that trend lines can be used as places where you will consider trading (trading opportunity) - see DbP's straight line trading thread http://www.trade2win.com/boards/trading-journals/212716-straight-line-approach-sla.html - but nothing is certain.

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Yeah there exist a probability that a certain event may or may not occur as defined from the set of possible outcomes meaning the price might or might not break the trendline. So when it comes to the possibility of a breakout we can conclude that nothing is certain here.

On a flip side there is a high chance that a long term uptrending line which has more than 2-3 touches will try and defend prices from the further downside. To put it simply we either break down when the support is weak or rebound when the support is strong enough.

Logarithmic scale:

Arithmetic scale:

I'm still being hesitant. The same price action suggests different outcomes on each scale. Which channel would be considered more reliable, more "valid" here?

 

[barjon]

It all looks very pretty but the outcome is not decided by lines on a chart - all they do is to identify places where you are prepared to make an assumption about price. From there price will either go up or down. Your job is then to take adequate advantage when it goes as you assumed and limit the damage when it doesn't.

the normal progression of price is to back and fill, but it doesn't do that because it's hit a line. Very often that natural progression is regular enough to draw a trend line or channel - sometimes clearer on a log scale, sometimes not. The key is not to say "the line will cause it to bounce" but to say "if it continues to progress as it has before this is a point where there's a good chance that it will start back up (down)."