# Bitcoin on a linear scale ?? Use a log!

Author: **Mohab Ibrahim Abu Ahmad**

Date of Publication: 06/10/2022

It is usual for mainstream media news channels to show a segment of breaking news on an asset like **Bitcoin** for instance. They exclusively use linear scale when they discuss the **price chart **of the **cryptocurrency**. Now, I think it’s more informative for them to use instead of linear. This is because it might be misleading when it comes to analyzing volatile charts visually. So, what’s the difference between the two? Why should you use **logarithmic **also, known as **log scale** chart, when reviewing a volatile asset **price chart** ?

**What is a linear and a Log scale**

Linear price scale—also referred to as arithmetic—represents price on the y-axis using equidistant spacing between the designated prices. Linear charts display absolute values. In **Figure 1** we can see two price movements of **Bitcoin** highlighted with green horizontal lines that are of the same proportion (100% increase). And yet, the blue arrows may mislead us towards thinking that one was way more significant than the other.

**Logarithmic** price scale or log represents price spacing on the vertical o y-axis. This depends on the percentage of change in the underlying asset's price. A **logarithmic** price scale uses the percentage of change to plot data points so, the scale prices are not positioned equidistantly. As we see in **Figure 2**,** **proportional price movements of **Bitcoin** appear similar. This is because distances between the units represent a percentage change of the security rather than a unique unit of measure.

**When to use Linear or Log**

When a security has **small price moves** and choppy trading action, a **linear chart** is the best method for charting the stock. However,** **for **volatile charts** such as **Bitcoin** the **logarithmic** **price chart** makes more sense as it can visually capture the significance of the larger price moves. So, the more volatile the asset, the better a **log scale** is.

Moreover, for long term perspective and monitoring. Use** log** because on linear charts a move from 10 to 20 appears identical to a move from 100 to 110. This can be misleading because a 100% increase appears visually identical to a 10% increase. In such cases, large price movements are more accurately observed using **log **charts which focus on the percentage of the move. On the other hand, it’s more applicable to move** **within a tight range on a short time frame using the linear scal**e**. In fact, this is because of the equal distribution in absolute dollar terms on the chart look **Figure 4**.

In addition, we analyze the price of a security using relative ratios such as P/E ratio, EP. Hence, when depicting the price of said security tracking, the movement in percentage is more appropriate. Still, it all depends on the type of security whilst more price explosive securities necessitate a** log scale**. Meanwhile, range confined ones where price is relatively stable are easier to trade on linear. Ultimately, most often traders are shown the ideal scale automatically by the platform they are using.

To sum up, it all depends on the type of security that you are reviewing and on the time horizon you are looking at. Nevertheless, next time you want to look at a volatile security with explosive price movements, make sure that you have your charts on a** logarithmic** setting especially for **Bitcoin**.

## Reference List:

__https://www.tradingsim.com/day-trading/logarithmic-scale-versus-linear-scale____https://www.tradingview.com/chart/Lhukp9Lm/?symbol=BITSTAMP%3ABTCUSD__