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To most accurately assess the long-term performance of an asset, does it make more sense to look at it with a logarithmic y-axis? I understand that this type of y-axis makes percentage movements equivalent on the chart, rather than the absolute price numbers. To me, this seems to make sense since an asset moving from $6->$12 is equivalent in performance as it is from $3,000->$6,000 and not using a log scale in this case would make the former move seem completely insignificant, despite its equivalence.

Intuitively, I follow this the logic but it appears to make certain assets of mine look more rosey than they do on the normal scale; they ran up a ton and then experienced significant corrections and in absolute price terms the charts look like there's been devastating decline. On the log charts, though, these corrections appear exceedingly minor.

As a long term holder and believer in the fundamentals of the asset and its future, this makes me feel secure and less emotional about these corrections. However, I want to make sure I am not missing or misunderstanding some nuance in these log charts that is luring me into a false sense of security.

To be clear, I have not made my long-position decision based on charts; it is purely on fundamentals. I am just looking to fully understand the picture shown to me on log charts.

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  • Which is more important to you, to know your account grew by 5% or that your account has $5,000 in it?
    – quid
    Jun 24 at 15:10
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    A linear chart depicts the numerical change in the data over time. A log chart depicts the growth rate over time. Whatever one assists you in your trading or investing is what's best for you. Jun 24 at 16:37
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Charts are just a tool -- only you know what question you are trying to answer by looking at one. Linear and log charts contain exactly the same information (although they can make aspects of that information easier or harder to read).

That a correction appears "exceedingly minor" on a log scale doesn't mean much without taking into account what the scale indicates. For example, a log scale spanning many orders of magnitude could make say a 2x swing (doubling or halving) look very small. It will still impact you as 2x no matter how the chart portrays it.

An advantage of a log scale is that it makes it easier to visualize the long-term historical return (compound growth rate) of an asset, since a rate of return fluctuating around a consistent mean will translate into a long-term log chart roughly resembling a straight line.

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