# Why Use a Logarithmic Scale to View Stocks?

When creating a price chart for a stock, a group of stocks or index, the price levels are represented on the vertical axis, also known as the Y axis, while time is represented on the horizontal, or X, axis. You use either an arithmetic scale or a logarithmic scale, also known as a "log scale," to divide the elements on the vertical axis. The stock you are analyzing should dictate your selection of scale.

## Arithmetic Scale

When using an arithmetic scale, the vertical axis is divided into equal increments. As a result, the same distance on the scale always represents the same price change, regardless of where you are along the axis. If for example, 1/8 of an inch is the distance between each dollar increment, the space between \$2 and \$3 is 1/8 inch, as is the space between \$24 and \$25.

## Logarithmic Scale

When using a log scale, the same distance will cover a wider range of prices as you go from the bottom to the top on the vertical axis. If, for example, 1/8 of an inch is the distance between \$2 and \$3, the same 1/8 of an inch will take you from, say, \$20 to \$30, since the later set of values is higher on the axis. While log scales can be set up in various ways, generally the same distance along the price axis always corresponds to the same percentage change. In our example, 1/8 of an inch represents a 50 percent price change as the price goes from \$2 to \$3 and from \$20 to \$30.