Using Logarithmic Scale Price Charts to Spot Tops

Attempting to spot tops with visual inspection of price charts can be tricky, particularly if the upside becomes very steep. Plots with an arithmetic scale for prices can show very steep upsides that lead to a parabolic pattern. The daily close of Manitowoc Company (MTX) shows two very steep upsides that form a parabolic upside pattern. This price advance is not sustainable but the chart gives no clues how high the stock can rise.

But plotting the same daily closing prices on a logarithmic scale "straighten" the price sequence and you can see a linear upside price channel. Here you can see that current prices are near the upper boundary of the channel strongly suggesting that they are nearing a top at least for now.

Related Articles:

Anatomy of a Bubble Top
Price Patterns - A Bubble Top is an Extreme Pattern
Price Upsides Often Occur in Three Stages
Three Views of a Price Bubble Using Arithmetic and Log Charts

Posted December 15, 2006. Updated August 10, 2007.