5 Cool thinkorswim® Stock Charting Tools You'll Want to Learn

There's more to charts than looking at price and volume. This guide teaches you how to use the thinkorswim® stock charting software with five cool tools.

https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Drawing the world: Price charts for traders
5 min read
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Key Takeaways

  • Become familiar with the different charting features available on thinkorswim

  • Understand how to compare charts, create drawing alerts, and backtest strategies directly from price charts 
  • Use the expansion area of a price chart to identify future corporate actions and probable price ranges

Whether you’re new to thinkorswim® or eager to find new ways to evaluate an investment, look no further than the Charts tab near the upper right of your screen. Want to compare two stocks on one chart? No problem. What about setting an alert for when price breaks out of a trendline? Want to do a little backtesting before jumping into a trade? You’re covered.  

What about technical indicators? The platform has hundreds of preloaded studies and strategies. You can even design your own studies right in thinkorswim.

Let’s take a look at five helpful features that experienced chartists and beginners can use in day-to-day trading from the thinkorswim Charts tab.


1. Overlay Stock Charts

An overlay stock chart plots two or more different stocks or indexes on the same price chart. It’s a way to see relative performance—whether one is over- or underperforming the other. It can be a way to measure relative strength, and it’s also handy if you’re looking at correlations between stocks, sectors, or asset classes, such as the financials sector versus the S&P 500® index (see figure 1).

Overlay charts feature in thinkorswim
FIGURE 1: COMPARING NOTES. Use the overlay function on thinkorswim to compare two symbols: in this case, the S&P 500 index (SPX, candlesticks) and the financials sector (IXM, purple line). Data source: S&P Dow Jones Indices. Chart source: the thinkorswim platform. For illustrative purposes only. Past performance does not guarantee future results.

Ready to give it a try? Here’s how to create an overlay:

  1. From the Charts tab, bring up a chart, and select Studies from the upper right. Then hover over Add study to see the expanded menu.
  2. Select Compare with at the bottom of that menu. You’ll see a list of default index symbols, such as DJX and SPX, as well as Custom symbol… at the top. Choose a default symbol or enter a custom one to overlay it on the chart.

The left vertical axis will be scaled for the overlay symbol so the high and low range fits on the same chart. You can also add more index or custom symbols.

To take overlays one step further, open Chart settings (gear icon), and under the Price axis tab, check Show price as percentage. That switches the right vertical axis to show percentage changes, which may help you compare the performance of the symbols you’re charting.

2. Drawing Alerts

Did you know you can set alerts based on chart drawings such as trendlines, retracement levels, price channels, and so on? Whenever a security’s price breaks through a trend you’ve defined, you’ll be notified.

Setting up such an alert is straightforward. Simply select a drawing and right-click to select Create alert. This opens up a dialog where you can define how you’d like the alert to trigger (see figure 2).

Because all drawings are essentially simple lines, alerts can trigger when prices cross them.

Beyond that, all the standard alert preferences can be set from this menu, such as the notification method or when the alert should expire. After entering the parameters, select Create to set the alert. A flag appears on the chart drawing to indicate that an alert has been set. You can edit or cancel the alert by right-clicking the flag.

Before creating the alert, you can also check the Show Alert Book after I press Create box. This will add the drawing alert to the Alert Book section of the MarketWatch tab, along with any other alerts you’ve set.

You’ll see the name of the drawing and symbol for each alert, as well as the time frame of the applicable chart.

This last bit is important to keep in mind to avoid confusion. The slopes of lines change when they’re applied to different chart aggregations, so remember that an alert will trigger only when a crossover occurs on the same aggregation as the original chart.

For example, it’s possible to see a crossover on a 15-minute chart that doesn’t appear on a 5-minute chart. If the alert was created on the 5-minute chart, then it wouldn’t trigger. To help you remember this, the flag will only show up on charts of the same aggregation, and the entry in the order book will specify the aggregation as well.

Set drawing alerts in thinkorswim
FIGURE 2: TREND ALERT. Add alerts based on chart drawings to be notified when a stock smacks through the bottom of a trendline or breaks out above it. Chart source: the thinkorswim platform. For illustrative purposes only. Past performance does not guarantee future results.

3. Backtesting*

You can backtest trading strategies based on technical indicators and see the hypothetical profit and loss (P&L) performance right on your charts. thinkorswim Charts offer strategies, which are simulated long and short entry and closing points determined by a technical indicator. You can even code your own strategy. That’s beyond the scope of this article, but here’s how to get started (see figure 3).

Backtesting feature on thinkorswim charts
FIGURE 3: REAL TEST, FAKE MONEY. Backtest a strategy to see how it might have performed historically. Then view the entry and exit points on the chart, as well as a P&L, before committing real dollars. Chart source: the thinkorswim platformFor illustrative purposes only. Past performance does not guarantee future results.

To try out backtesting:

  1. Go to Studies in the upper right and select the Edit studies.
  2. In the pop-up window, select Strategies.
  3. On the left, you’ll see a list of default strategies. To make a strategy engage, you need to add commands that’ll show both “long entry” (LE) and “short entry” (SE) at a minimum.
  4. For practice, you can look for the BollingerBandsLE and BollingerBandsSE strategies. Those are the long-entry and short-entry commands based on Bollinger Bands®. Double-click each one to add it to the list of studies and strategies in the main body of the Edit Studies and Strategies window.
  5. Select Apply in the lower right corner, then OK.

You should now see “BollingerBandsLE” and “BollingerBandsSE” labels on your chart, indicating the simulated buying and selling of 100 stock shares based on the Bollinger Bands test. To see the P&L of those simulated trades, hover directly over one of the labels and right-click to open a new menu. Select Show Report to open the Strategy Report window. Here, you’ll find the buy and sell signals and P&L data for the strategy.

And by the way, if you want to buy or sell the stock shares for real, right-click in the chart’s main body and select Buy or Sell from the menu. Plus, at the far right of the chart, you’ll see tabs for Trade, Time and Sales, Level II, and so on. These let you add windows with those features next to the chart window. It basically lets you set up your Charts tab as your go-to page for stock and futures trading.

A final note on backtesting. Never forget the old adage (and standard financial disclaimer): Past performance of a security or strategy does not guarantee future results or investing success. It’s particularly important when backtesting for strategy selection. 

*Backtesting is the evaluation of a particular trading strategy using historical data. Results presented are hypothetical, they did not actually occur and there is no guarantee that the same strategy implemented today would produce similar results.

4. Future Corporate Actions

thinkorswim Charts let you plot future dates to the right of the current date. Why? To help you locate upcoming earnings and dividend dates, for one thing. Plus, you can extend drawings like trendlines or into the future to identify possible price targets. Figure 4 shows you how to set this up.

Chart future dates in the expansion area to see upcoming earnings or dividends.
FIGURE 4: PEEKING AT THE FUTURE. By adjusting a chart to display future bars on the right (the expansion area), you can view upcoming earnings and dividend dates. Chart source: the thinkorswim platformFor illustrative purposes only. Past performance does not guarantee future results.

To chart a future period in the expansion area:

  1. Select Style at the upper right and choose Settings... from the menu.
  2. Select the Time axis tab in the Chart Settings window.
  3. Now look for the Expansion area. You can enter a number in the field for bars to the right—say, 10—then select Apply at the bottom right.

This will add some empty space to the right of the current date on the chart (see figure 4). Now you can extend a trendline or other drawing into that space by hovering directly over the trendline and right-clicking it. Then select Extend to the right from the menu, and you’ll see the line extend to those future dates.

5. The Cool Probability Cone

A study that’s built specifically for those future dates is the Probability of Expiring Cone (see figure 5), which gives you a probable price range at different contract expirations (weeks or months). The cone draws the upper and lower bounds of a symbol’s price range to theoretically encompass a predefined level of probability.

Display the probability cone on thinkorswim charts
FIGURE 5: WHAT’S THE PROBABLE PRICE RANGE? The probability cone (purple curve) helps estimate the upper and lower bounds of a stock or index’s price range within a predefined level of probability. Chart source: the thinkorswim platformFor illustrative purposes only. Past performance does not guarantee future results.

One way to add the cone study is to select Studies > Edit studies icon and look up ProbabilityOfExpiringCone in the left window. Double-click to add it to the list of chart studies. You’ll also find two fields to edit for the study by clicking the gear symbol. The “period” is the number of future dates for which the probability cone is calculated, and the “prob range” is the probability the projected range covers. The default “prob range” is 68%, which corresponds roughly to one standard deviation. Set it to 95% to see a cone that covers two standard deviations or 99% to cover three standard deviations. (Learn more about probabilities and volatility.)

These features really just scratch the surface of the thinkorswim stock charting software. But hopefully you now have an idea of the scope and how to access some of the potential. Each of the many menus offers more choices that will lead you to additional functions. Go ahead and continue to explore thinkorswim Charts to see just how hard you can make them work for you.

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Key Takeaways

  • Become familiar with the different charting features available on thinkorswim

  • Understand how to compare charts, create drawing alerts, and backtest strategies directly from price charts 
  • Use the expansion area of a price chart to identify future corporate actions and probable price ranges

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 Probability analysis results are theoretical in nature, not guaranteed, and do not reflect any degree of certainty of an event occurring.  

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