Scales: Arithmetic Vs Logarithmic – an important tool in the binary options trading
Binary options trading have many ways to ascertain the market trends and one such way is the Scales of Arithmetic Vs Logarithmic. When we draw the chart of the price, we try to show and understand how the changes take place in the asset price, with time. When the chart or a graph when drawn, on its x-axis, it has time and on its y-axis, it has price.
This is irrespective of the fact that whether it represents a stock, commodity, currency-pair, or index. Generally in the Binary options trading, time moves ahead at a rate which can be foreseen and is straight in nature, thus the horizontal axis is remains quite static.
This x-axis is dispersed into uniform intervals of time or breaks. On the other hand the y-axis which depicts the price cannot be foreseen easily and its is not static either in nature. There are assets which have their prices stable for quite some time, and some which jump wild, and occationally drop or rise in an exponential manner. For this ground few cost tables use a scale which is arithmetic, and some use a scale, which works on logarithms – both being aspects of binary options.
One much familiar kind of scale that is used in graphs in the binary options trading is the scale, based on arithmetic. The price is spaced out evenly on the axis as it rises, when it is arithmetically scaled on a graph. When an asset does not make too erratic jump as far its price is concerned, then price is evenly spread on the axis of the price, with one space denoting 1 USD.
This is the best way to scale assets, which stay in small ranges. If we see the other side of the arithmetic scale, an important part of the binary options, we would see that for six months if a stock trades betwixt 10 USD and 20 USD, it then for the coming six months jumps to 500 to 600 USD and using the arithmetic scale would distort the data.
This would result in a graph which would be impractical, thus from here the logarithmic scale starts its task. The use of a logarithmic scale, in the binary options, is on cost pivot when the cost of the assets has gone through a huge variation, say for example from tens to hundreds and even to thousands of dollars.
Therefore, each stroke would represent a multiplication of ten. Thus a graph of logarithm has 1USD, 10 USD, 100 USD and then 1000 USD at each interval, which would show that that particular asset has had a vast range of variation, and this is shown very easily, and clearly.