Plan Ahead: 3 thinkorswim® Tools for Probability Analysis

You may not know what the market will do next. But you can identify probable outcomes with these three thinkorswim® probability analysis tools.

https://tickertapecdn.tdameritrade.com/assets/images/pages/md/chess board: probability analysis
6 min read
Photo by Getty Images

Key Takeaways

  • Explore the expansion area on thinkorswim charts
  • Learn how to use the probability of expiring cone to figure out possible future price ranges
  • The expansion area of a price chart can be used to identify upcoming earnings and ex-dividend dates

It’d be great if you could get a peek at next year’s stock prices so you can buy below that price and sell above it. But that’s a fantasy. You can’t see how the stock market might perform in the future, but that doesn’t mean you can’t make any decisions. There may be some hints about what the market is cooking up. How do you find them? Here are some thinkkorswim probability analysis tools that might help inform your decisions about future trades. Let’s try to unlock the mystery. 

Expand a Chart Area

When you look at a stock’s price chart, the current day’s data is usually on the right side. Of course, there’s no way to fill in future days with price data. But on the thinkorswim platformyou can expand the chart to plot future dates to the right of the current date. The expanded earnings chart can’t predict the future, but it can show upcoming earnings and ex-dividend dates, and you can extend drawings like trendlines into the future.

To do that, go to the Charts tab > Style > Settings... to open up the Chart Settings box (see figure 1). 

From the tabs on the top of the Chart Settings box, select Time Axis. There you’ll find the Expansion area: __ bars to the right control. This is the key to unlock the tools. 

The number of bars you enter will be the number of future days the chart will display. You won’t see any price data, but it’ll give you room to display other information like probability, earnings, dividends, and options prices. In figure 1, the chart is set to show the next 60 days. Now that you know where the fun stuff is hidden, let’s put it to work.

charting expansion area on thinkorswim

FIGURE 1: SETTING PARAMETERS FOR THE EXPANSION AREA. You can choose how many bars to the right to expand the chart area and also opt to display information such as earnings and dividends. Chart source: The thinkorswim platformFor illustrative purposes only. Past performance does not guarantee future results.  

Probability Analysis Using thinkorswim Charts

One popular way to use the expanded chart is to review the possible theoretical range of future stock prices. Pull up a chart and select Studies > Add study Volatility Studies ProbabilityOfExpiringCone. This displays a probability cone on the right side of the chart that gives you an idea of where the stock price might be in the future (see figure 2). The cone, which is a standard deviation bell curve, combines the current implied volatility of the options of an underlying stock with the number of future days displayed, then shows the upper and lower range of prices where the stock might theoretically land 68% (default value or one standard deviation) of the time for each expiration Friday. Price could be above or below the cone 32% of the time.

By default, you’ll see upper and lower numbers corresponding to future options expirations. But you can also scroll over the probability cone line to highlight a specific date and see the upper and lower prices for that date at the top of the chart.

The probability cone is for informational and educational purposes only and is no guarantee the stock price will be inside that projected cone at a future date. But it provides some context for bullish, bearish, or neutral biases. 

For example, let’s say you’re looking at a stock that’s $180, and you have a hunch it might rise to $210 in three months. First, set the number of bars to 90 days or more. Then, using the 68% probability cone, you might see that it has an upper value of $225 and a lower value of $140 in 90 days. Your $210 target is within the upper and lower boundaries of the cone, which means it’s within the stock’s 68% theoretical range. That’s not to say the stock will rise to $210 in 90 days, but there’s a 68% chance it could.

The probability cone is set to 68% by default, but you can edit the study to show any percentage up to 99%. Try setting it to 95% to see a cone that covers two standard deviations or 99% to cover three standard deviations.

thinkorswim probability or expiring cone

FIGURE 2: WHERE MIGHT PRICES GO? The probability cone gives you an idea of the potential future upper and lower range of prices. Chart source: The thinkorswim platformFor illustrative purposes only. Past performance does not guarantee future results.  

How to See Future Earnings on thinkorswim Charts

Next, let’s look at how to show future earnings on thinkorswim charts. Go back to the Chart Settings box, select the Equities tab, and check Show Corporate Actions. This will display upcoming earnings calls and dividend dates in the expanded chart area (see figure 3). Blue lightbulb icons indicate upcoming earnings announcements, red phone icons indicate conference calls, and green dollar icons indicate ex-dividend dates.

How can this be helpful? Some stocks can exhibit increased price volatility before and/or after earnings announcements. If a stock beats or misses expected numbers, its price could have a big move up or down, with a similarly big impact on a potential trade. If you hover your cursor over the blue question mark or red phone icons, you’ll see the date and time (typically before the open or after the close of trading) of earnings releases. This will help you adjust your strategy accordingly.

display earnings on thinkorswim chart

FIGURE 3: FUTURE CORPORATE ACTIONS. When will earnings be released? When will dividends be distributed? This information can be displayed on the expanded areas of your charts. Chart source: The thinkorswim platformFor illustrative purposes only. Past performance does not guarantee future results.  

So, these handy tools may not show you what price will be in the future, but they can provide context for potential trades. After all, trading is all about what might happen in the future. These charting tools on thinkorswim just might help you envision that future a bit more clearly.

Jayanthi Gopalakrishnan is not a representative of TD Ameritrade, Inc. The material, views, and opinions expressed in this article are solely those of the author and may not be reflective of those held by TD Ameritrade, Inc.

Print

Key Takeaways

  • Explore the expansion area on thinkorswim charts
  • Learn how to use the probability of expiring cone to figure out possible future price ranges
  • The expansion area of a price chart can be used to identify upcoming earnings and ex-dividend dates

Related Videos

Call Us
800-454-9272

Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.

Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

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

Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.

TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2021 Charles Schwab & Co. Inc. All rights reserved.

Scroll to Top