A p&f chart with a log-scaled box values (fixed percentage price change per box) sets the box value change required for the box above, and the box below, any current box to be a fixed percentage of that current boxes value eg on a 1% log scaled chart, it would take a 1% price increase to go to the box above OR it would take a 1% price decrease to go to the box below. Once you would be one box higher, it would take a 1% price increase of the new boxes price to go to the next higher box, etc.
This creates a p&f chart that presents the price movements in terms of fixed percentage price moves. Because of this feature, a chart of an issue that is trading in any price range can be compared with another chart trading in any other price range ie you are viewing the p&f patterns in terms of percentage movement (the way most folks think of their investment progress eg I made/lost 11% on XYZ rather than I made/lost $.17 on XYZ)
A fixed box price allows for patterns that vary wildly based on the price delta specified with relation to the absolute price of the issue eg using $10/box for the DOW-30 would produce patterns that are vastly different than using $100/box. Fixed price change box scaling does not work well with issue that have large price swings or for comparing issues with different base price ranges.
Use any tool, EZ-PnF or StockCharts for example, and take another look at VZ using 'Traditional/Chartcraft' scaling, 2% log(percentage)), and 1% log(percentage).
The Traditional chart is bogged down by the box scaling method definition used, but does show a breakout into an uptrend, but it has hit and is fighting the Bearish Resistance Line(BRRL).
The 2% log chart is much more responsive and shows it's BRRL has been broken for quite a while and the issue is already trading in a bullish trading channel.
The 1% log chart allows even faster chart responsiveness showing not only the Bullish trading channel, but two secondary, higher Bullish Support Lines.
Does this answer your question re log vs fixed vs traditional scaling?
Ben A.
ez-pnf.com |
