what is the logic?
Question 5
A trader is looking at long-term charts and wants to exit some of his long positions. In
doing so, he wants to confirm major trendline breaks to decide when to exit the positions.
Which price scale will generate an earlier breakdown alert?
a Linear scale
b Logarithmic scale
c Scale will not impact this
B is correct. A trendline plotted on a logarithmic scale will be steeper in an uptrend
when compared to the same trendline plotted on a linear scale. As a result, a reversal
will breach the trendline earlier on a logarithmic scale than on a linear scale.
Logarithmic scale is suitable for long time frame whereas linear scale is more suitable for short time frame
Ex of Logarithmic scale is pricing gold because gold price movements happen from large period of time so we take y axis as price and x axis as time frame
Whereas linear scale is used for the short duration price movements like weekly chart, monthly chart, daily chart