Section 2 - Chapter 3 - The Y Axis - CMT Level 1 Short Notes 2025

Section 2 - Chapter 3 - The Y Axis - Presented by Rohan Sharma - The CMT Coach - Chartered Market Technician CMT Level 1 Study Material - CMT Level 1 Chapter Wise Short Notes - CMT Level 1 Course Content - CMT Level 1 2025 Exam Syllabus Visit Site : www.learn.ptaindia.com and www.ptaindia.com

1. Chapter 3 – The Y Axis Section 2 - Charts - Market Price Data Presented By : This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

2. Agenda Learning Objective Statements: The Y-Axis Arithmetic Scale Logarithmic Scale This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

3. Logarithmic vs. Linear Scale in Charts 1. Definition • Linear Scale: The y-axis increases by equal increments (e.g., 1, 2, 3, 4, …). • Logarithmic Scale: The y-axis increases by orders of magnitude (e.g., 10, 100, 1,000, …), meaning each step represents a multiplication rather than an addition . 2. Interpretation in Charts • Linear Scale Interpretation: o A straight line represents constant absolute change. o Exponential growth appears as a curve. • Logarithmic Scale Interpretation: o A straight line represents constant percentage growth (e.g., 5% growth per year). o Exponential growth appears as a straight line . This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

4. Logarithmic vs. Linear Scale in Charts This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

5. Logarithmic vs. Linear Scale in Charts This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

6. Logarithmic vs. Linear Scale in Charts This Content is Copyright Reserved Rights Copyright 2025@PTAIndia Feature Linear Scale Logarithmic Scale Y-axis spacing Equal increments Logarithmic increments (e.g., factors of 10) Usage Ideal for small-range data Ideal for large-range or exponential data Interpretation Absolute differences matter Percentage changes matter Visual Representation Direct increases/decreases shown clearly Compresses large numbers, expands smaller values Common Applications Stock prices, temperature, distance Stock market growth, earthquake magnitude, decibel levels, pH scale

7. Logarithmic vs. Linear Scale in Charts Key Differences in Technical Analysis This Content is Copyright Reserved Rights Copyright 2025@PTAIndia Feature Linear Scale Logarithmic Scale Y-Axis Representation Equal spacing for equal price changes Equal spacing for equal percentage changes Best Used For Short-term trading, small price fluctuations Long-term trends, large price movements Price Gaps Small changes appear visually significant Large changes are visually compressed Trendlines & Patterns More relevant for small price movements More accurate for long-term trendlines Support & Resistance Can distort trendlines over long-term data More accurate for exponential trends Common Use Cases Day trading, scalping, low-volatility stocks Long-term investing, high-volatility assets (crypto, hyper-growth stocks)

8. Logarithmic vs. Linear Scale in Charts 3. Interpretation in Technical Analysis • Linear Scale Interpretation: o Equal price movements look equal on the chart. o Exponential price growth looks parabolic. o Support & resistance trendlines may not align well over long periods. • Logarithmic Scale Interpretation: o Equal percentage changes look equal on the chart. o Exponential growth appears as a straight line. o Long-term trendlines, support, and resistance levels align better. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

9. Logarithmic vs. Linear Scale in Charts 4. When to Use Each Scale in Trading ✅ Use a Linear Scale When: • Analyzing short-term trends and intraday price action. • Evaluating stocks with stable, small price fluctuations. • Drawing trendlines for stocks with narrow price ranges. ✅ Use a Log Scale When: • Analyzing long-term trends (months to years). • Evaluating assets with large price swings (e.g., Bitcoin, high-growth stocks). • Drawing accurate trendlines for exponential price movements. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

10. Logarithmic vs. Linear Scale in Charts 6. Common Technical Indicators & Their Behavior on Log vs. Linear Scales This Content is Copyright Reserved Rights Copyright 2025@PTAIndia Indicator Linear Scale Log Scale Moving Averages (SMA/EMA) Works normally Works normally, but better for long-term trends Fibonacci Retracements Can misalign in large trends More accurate for percentage-based retracements Trendlines Can be misleading over large price ranges More precise for long-term trends Bollinger Bands No major difference No major difference RSI/MACD No difference No difference

11. Logarithmic vs. Linear Scale in Charts 6. Real-World Technical Analysis Examples • Linear Scale Example: o A stock moves from $100 → $110 → $120 (equal $10 increments). o On a linear scale, the jumps look the same. • Log Scale Example: o A stock moves from $10 → $20 → $40 (100% gains). o On a linear scale, the second move looks bigger than the first. o On a log scale, both moves appear equal because they are both 100% increases . 7. Conclusion: Which Scale Should You Use? • Short-term traders (day traders, scalpers) → Prefer linear scale. • Long-term investors (swing traders, crypto traders, stock investors) → Prefer log scale. • If price has moved exponentially over time → Use log scale for trend accuracy . This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

12. Trading Strategies on Arithmetic (Linear) Scale in Technical Analysis 1. Understanding Arithmetic (Linear) Scale • In a linear (arithmetic) scale, the y-axis moves in equal increments, meaning a $10 move at any price level looks the same. • Ideal for short-term traders who focus on absolute price movements rather than percentage changes . This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

13. Trading Strategies on Arithmetic (Linear) Scale in Technical Analysis 2 . When to Use Linear Scale in Trading ✅ Best for: • Day Trading & Scalping → Small price fluctuations matter. • Low-Volatility Stocks → Price movements are not exponential. • Support & Resistance Trading → Horizontal levels are easier to spot. • Moving Averages & Trendlines → More relevant for smaller price ranges. 🚫 Avoid using for: • Long-Term Trading → Can distort trendlines on exponential growth stocks. • Cryptocurrency & High-Volatility Assets → Log scale is better for exponential moves . This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

14. Trading Strategies on Arithmetic (Linear) Scale in Technical Analysis 3. Key Trading Strategies Using Linear Scale A. Support & Resistance Trading • Identify key horizontal levels where price reacts frequently. • Buy near support, sell near resistance. • Works best on range-bound stocks (sideways markets). ✅ Example: • Stock fluctuates between $50 support and $60 resistance → Buy at $50, sell at $60. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

15. Trading Strategies on Arithmetic (Linear) Scale in Technical Analysis B. Trendline-Based Trading • Use straight trendlines to identify uptrends and downtrends. • Connect higher lows (uptrend) or lower highs (downtrend). • Works well in linear scale for short-term price movements. ✅ Example: • A stock moving $100 → $110 → $120 forms a clear trendline → Buy on dips near the trendline . C. Moving Average Crossover Strategy • Uses Simple Moving Averages (SMA) or Exponential Moving Averages (EMA). • Buy Signal: Short-term MA (e.g., 10-day) crosses above long-term MA (e.g., 50-day). • Sell Signal: Short-term MA crosses below long-term MA. ✅ Example: • 10-day SMA crosses above 50-day SMA → Buy Signal . This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

16. Trading Strategies on Arithmetic (Linear) Scale in Technical Analysis D. Fibonacci Retracements (Caution in Linear Scale) • Fibonacci retracements (e.g., 38.2%, 50%, 61.8%) work but may be less accurate in large price swings. • More precise on linear scale for short-term price corrections. ✅ Example: • Stock rises from $100 → $150, retraces to $125 (50% level) → Possible bounce . E. Breakout Trading Strategy • Identify a consolidation range and trade breakouts above resistance or below support. • Works best on stocks with consistent price movements (not parabolic growth). ✅ Example: • A stock is stuck between $90-$100 for weeks → A breakout above $100 signals a strong buy . This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

17. Trading Strategies on Arithmetic (Linear) Scale in Technical Analysis 5. Final Thoughts: Should You Use Linear Scale? ✅ Use Linear Scale If: • You are a day trader or short-term trader. • You trade stocks with steady price movements. • You rely on absolute price changes rather than percentage changes. 🚫 Use Log Scale If: • You trade long-term, high-growth stocks or crypto. • You want to track exponential trends & percentage-based moves. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

18. Trading Strategies on Logarithmic Scale in Technical Analysis 1. Understanding Logarithmic (Log) Scale in Charting • Log scale charts display percentage-based changes, rather than absolute price differences. • Each step on the y-axis represents a multiple of the previous value (e.g., 10, 100, 1,000 instead of 10, 20, 30). • Useful for assets that experience exponential growth or large price swings over time . 2. When to Use Log Scale in Trading ✅ Best for: • Long-Term Trend Analysis → Stocks, indices, and crypto that grow exponentially. • High-Volatility Assets → Bitcoin, Tesla, Nvidia , Amazon, etc. • Drawing Trendlines Accurately Over Long Periods → Prevents distortion in parabolic moves. • Fibonacci Retracements & Extensions → More accurate support/resistance levels. 🚫 Avoid using for: • Short-Term Trading & Intraday Charts → Absolute price moves matter more. • Low-Volatility Stocks & Commodities → Linear scale is often clearer . This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

19. Trading Strategies on Logarithmic Scale in Technical Analysis 3. Key Trading Strategies Using Log Scale A. Log-Based Trendline Trading • Log scale provides more accurate trendlines over long timeframes. • A rising trendline that looks broken on a linear chart might still be intact on a log chart. ✅ Example: • A stock that rises from $10 → $100 → $1,000 may appear unsustainable on a linear chart, but on a log chart, the uptrend remains steady. Trading Strategy: • Buy when the price pulls back to a log-based trendline in an uptrend. • Sell when the price breaks below a long-term log trendline . This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

20. Trading Strategies on Logarithmic Scale in Technical Analysis B . Fibonacci Retracements (More Accurate on Log Scale) • Fibonacci levels work better on log charts because they measure percentage retracements rather than absolute values. • Key levels: 38.2%, 50%, 61.8% retracements. ✅ Example: • A stock rises from $100 → $1,000. A 50% retracement would be to $500, not a fixed $500 drop like on a linear scale. Trading Strategy: • Buy near 38.2% or 50% Fibonacci retracement in an uptrend. • Sell near 1.618 Fibonacci extension for profit-taking. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

21. Trading Strategies on Logarithmic Scale in Technical Analysis C. Logarithmic Moving Average Strategy • Moving averages (MAs) work well in log scale for long-term trend following. • Common MAs: 50-day, 100-day, 200-day MA. ✅ Example: • Bitcoin's 200-week MA on a log scale has historically marked major bottoms. Trading Strategy: • Buy when price finds support on long-term MAs in a log uptrend. • Sell if price closes below long-term MAs on log scale. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

22. Trading Strategies on Logarithmic Scale in Technical Analysis D. Exponential Growth Breakouts (Log Scale Identifies True Trends) • Many stocks & cryptos experience parabolic growth that looks unsustainable on a linear chart. • Log scale helps identify whether a breakout is genuine or just hype. ✅ Example: • Amazon (AMZN), Tesla (TSLA), and Bitcoin (BTC) show steady log uptrends over years, despite looking overbought on linear charts. Trading Strategy: • Buy breakouts from long-term log trendlines or consolidation patterns. • Use log-based trendlines to set stop-losses. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

23. Trading Strategies on Logarithmic Scale in Technical Analysis E. Percentage-Based Risk Management (Essential in Log Trading) • Since log charts represent percentage moves, traders should set stops & targets based on percentage risk, not fixed dollar amounts. ✅ Example: • Instead of saying, "I’ll risk $10 per trade," say, "I’ll risk 5% of my capital per trade." Trading Strategy: • Use ATR (Average True Range) on log charts to determine volatility-based stop losses. • Set targets based on percentage gains (e.g., 50% or 100% profit targets). This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

24. Trading Strategies on Logarithmic Scale in Technical Analysis E. Percentage-Based Risk Management (Essential in Log Trading) • Since log charts represent percentage moves, traders should set stops & targets based on percentage risk, not fixed dollar amounts . This Content is Copyright Reserved Rights Copyright 2025@PTAIndia Aspect Log Scale Linear Scale Best for Long-term trend analysis Short-term trading Trendlines More accurate for exponential growth Good for steady price moves Fibonacci Levels More precise for big price swings Works better for small price changes Breakouts Useful for parabolic moves Useful for range-bound stocks Risk Management Percentage-based stops & targets Absolute price-based stops & targets

25. Trading Strategies on Logarithmic Scale in Technical Analysis 5. Conclusion: Should You Use Log Scale for Trading? ✅ Use Log Scale If: • You trade long-term stocks, crypto, or assets with exponential growth. • You use trendlines & Fibonacci retracements in your strategy. • You want more precise risk-reward calculations based on percentages. 🚫 Use Linear Scale If: • You are a short-term day trader or scalper. • You trade stocks with small, consistent price movements. • You rely on absolute price levels for entries & exits. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

26. Next Chapter 4 - Charting Volume and Open Interest Section 2 - Charts - Market Price Data Presented By : This Content is Copyright Reserved Rights Copyright 2025@PTAIndia