What is important, though, is percentage return, not dollars.
The percentage return from $1 to $2 is the same as the percentage return from $10 to $20. They both represent a 100% return.
Arithmetic charts show a distorted view of an investment, because they do not show the same percentage return at different prices with the same distance.
A double is a double is a double. But an arithmetic chart makes a double from 1 to 2 appear to be less significant than a double from 10 to 20. It isn't, though - it's equally significant. $1000 invested at 1 becomes $2000 at 2, as sure as $1000 invested at 10 becomes $2000 at 20.
For some reason, it is very difficult to get the human mind to think this way, though. For some reason, we want to think that a double from 10 to 20 represents more than a double from 1 to 2.
Besides this basic misrepresentation, the most compelling reason for semi-log charts is that most TA techniques simply were not designed for arithmetic charts, and are completely invalid when used on an arithmetic charts.
(There are a very few rare exceptions, which were designed to be used only with an arithmetic chart.) |
