Number systems

As human beings we are taught simple mathematics in high school
The mathematics of the arithmetic scale
where
2-1=1
3-2=1
And where we believe that the distance between 3 and 2 is the same as the distance between 1 and 2
As traders we need to understand the true scale of nature the logarithmic scale.
The distance between 1 and 2 is only half the distance between 2 and 3

2/1=1
3/2=1.5
i.e ln 3- ln 2 = 2*(ln 2 - ln 1)
reason is if I invested 10,000 rs at 1 rs per share and it moves to 2 i made a profit of 10,000 rs or 100%!!
Now imagine a late comer joins the party at 2 rs per share and invests 10,000 rs
For this chap to make 10,000 rs profit or 100% the share has to go to 4 rs not 3rs.


Did anyone ever wonder why the market faced res at 4244 and topped??? i remember posting the log channel a long time ago on this site.
the % gain from 2600 to 4244 was exactly equal to the % gain from 2307 to 3773
S&P CNX NIFTY, Analysis Date:12/29/2006 4:18:15 PM
Close/cmp:3966.4
Swing : Up=Buy ( 13.200% sensitivity)
T1:3614.86 T2:4244.68
T3:5263.59 1xR:4951.25
SwingHigh:3,773.6 CMP:3,966.4
SwingLow:2,307.9 SLPivot:2,595.9
2xAtr14Stop:285.781
Narrowsl:2,595.95
WideSl:1,865.81
Lower Chan:2868.43 Upper Chan:4276.5
ResLine:5456.23

This was a logarithmic swing projection
if the same computation had been done on arithmetic scale
the high would have been predicted at 3733-2308+2600 = 4061 or so
which by the way also gave us a high. So i wouldn't say arithmetic is useless , its a shortcut but the true structure of the market is visible on the log scale.
reason is in the short swings log/arithmetic will be very similar anyway.
so while log can still be accurate on the short swings like arithmetic , arithmetic cannot be as useful on the large swings as log.


Once you appreciate this fact you will understand why the fibonacci tool of amibroker and metastock are pathetic. They only give arithmetic projections :)
Want a fibonacci tool that does arithmetic/log levels?
I have one but i'll only put it up for sale if I get 5 enquiries , price is 10,000 rs for chart pattern detection+fibonacci analysis rolled into one.