Mark noticed Antony sitting beside him at work, looking a little lost and seemingly contemplating something.

Mark: Hey Antony. What are you thinking about?

Antony: A couple of weeks back, I saw the log chart analysis of the BSE Information Technology index in bl.portfolio. I was surprised to see that the log chart of the BSE IT index was giving a completely different picture.

Mark: How does that make you clueless now?

Antony: After reading that analysis, I was trying to do self-study about log charts. But I am not able to understand the concept.

Mark: Come on. Take that paper and scale from your desk and let us go to the canteen and discuss this over coffee.

(Antony waits at a table while Mark brings them their coffee)

Mark: Here is your coffee, Antony.

Antony: Thanks Mark. Now, explain to me about the log chart.

Mark: In a chart, we can plot the values in different forms. One is plotting the values (10,20,30 etc) as it is in the Y-axis of the graph. Since we are plotting the absolute values as it is, the Y-axis here can be called absolute scale.

Antony: Yes, I know. That is the usual chart which is widely used in every case. But how do I get a log chart

Mark: Yes, my dear friend, I am coming to that part next. In a log chart, we convert the absolute values into a log value and plot them. You must have studied logarithms in school.

Antony: Yes, I vaguely remember that.

Mark: If you can recollect, log 1 to the base of 10 is zero and log 10 to the base of 10 is 1.

Antony: oh..oh..oh... Please stop. Don’t go back to mathematics. If you can explain it in simple terms, then we can continue. Else, I will get back to work.

Mark: Okay. Take your paper and scale. Draw two lines. One below the other. First from 5 cm to 10 cm. The second from 15 cm to 30 cm. Tell me the size of both lines and how do they look

Antony: hmm, the first line is 5 cm length and is smaller than the second line which is 15 cm long.

Mark: Now, note down the log values of these numbers. 0.7 (log of 5), 1 (log of 10), 1.18 (log of 15) and 1.48 (log of 30).  

Antony: Yes noted. But how and where can I get these values?

Mark: In excel, you have a function called log. You can get it by typing the formula: log(5).

Antony: Oh, that’s cool.

Mark: Now draw another two sets of lines, one below the other using these log values. From 0.7 cm to 1 cm and 1.18 cm to 1.48 cm.

Antony: Let me try.

Mark: Yes, tell me your observation.

Antony: Oh no. What is this. Both the lines are of the same size, 0.30 cm. How come?

Mark: You will get the logic right if you answer this question correctly. In our example 5,10 and 15,30, the second number in both sets are twice that of the first number.

Antony: hmmm, yeah. 10 is two times of 5 (5*2) and 30 is two times of 15 (15*2).

Mark: Now, think of these numbers in terms of share price movement of say stock A and stock B. You bought A at ₹5 and sold it at ₹10. Similarly, you purchased B at ₹15 and sold it at ₹30. What is your profit?

Antony: From A, I got a profit of ₹5 (₹10-₹5) and from B ₹15 (₹30-₹15).

Mark: What is your return in terms of percentage.

Antony: My investment doubled in both cases. So, it is a 100 per cent return for both.

Mark: Yes, that is the logic of a log chart.

Antony: As in?

Mark: A log chart will capture the percentage movement between two points rather than their absolute values.

Antony: Oh, that is the reason the length of the two lines drawn by taking the log values (of 5,10 and 15,30) are the same than the ones drawn using the absolute values.

Mark: Exactly.

Antony: What is the use or purpose of using a log chart in financial markets?

Mark: You remember the market movement in 2008-2009 (the great financial crisis), 2020 (Covid) etc.

Antony: Yeah, highly volatile times for the markets.

Mark: Correct. Log values will normalise this volatility and give you a smooth curve on the chart. Whereas, using absolute values can show you some wild swings on the graph.

When you analyse a very long historical price movement, say for 30 years or so, log chart will give you a much better picture.

Antony: How come?

Mark: Assume that the share price has gone from ₹2 to ₹5,000 in 30 years. The price graph will look different in an absolute price chart and a log chart.

Antony: Movement from ₹2 to ₹5,000, hmmm.

Mark: Don’t think too much now. You will get more confused.

Antony: Yeah, I am not able to visualise that.

Mark: Come on. Let’s go back to our desk. Take a list of 10 stocks. Look at the price graph of all of them in both absolute price scale and log scale. You can understand much better. A picture is worth a thousand words.

Antony: Yes, I will do that.

Mark: In our next coffee break I will tell you how to use the log chart for analysis, what are the advantages etc.

(To be continued…)

Published on May 9, 2026