Introduction to Dow Theory
scaled charts tend to give earlier trend change signals since uptrend lines are
violated sooner. Conversely, arithmetically scaled charts tend to give slower
trend change signals as uptrend lines are violated much later. See Figures 2.8
and 2.9.
Sometimes it may be hard to decide which scaling to use in order to apply
technical overlays in a manner that would provide consistent signals. If an analyst
has been using logarithmically scaled charts on a regular basis, his or her inter-
pretation of the price action may differ from an analyst who regularly uses arith-
metically scaled charts. Figures 2.10 and 2.11 show Apple Inc. displaying a more
bearish flattening‐out‐type behavior on a logarithmically scaled chart, whereas
the arithmetically scaled charts depict a stronger and steadier uptrend for the
same stock over the same period.(2) the secondary trend or reaction The secondary trend is also referred
to as the secondary reaction because it moves or reacts in the opposite directionfIgure 2.8 Bull Market Turning into a Bear Market with Early Trend Change Signals
on a Logarithmically Scaled Chart of the Nasdaq 100 Index.
Courtesy of Stockcharts.comfIgure 2.9 Bull Market Turning into a Bear Market with Late Trend Change Signals
on a Arithmetically Scaled Chart of the Nasdaq 100 Index.
Courtesy of Stockcharts.com