thinkorswim Charts That Rule the World: Become a Charting Ninja

There are plenty of charting programs out there. But seriously, why look further? Other than make you an extra-shot nonfat vanilla latte, thinkorswim charts can do almost anything you’d need a chart to do–even if you’re not a chart reader.

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https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Plotting a course: Becoming a charting expert
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There are plenty of charting programs out there. But seriously, why look further? Other than make you an extra-shot nonfat vanilla latte, thinkorswim® charts can do almost anything you’d need a chart to do–even if you’re not a chart reader.

Want to compare two stocks on one chart? No problem. Would you like to conduct a little backtesting before jumping into a trade? You're covered. What about technical indicators, you ask? The platform has hundreds of preloaded studies and strategies. Or, develop your own thinkorswim studies right in the platform.

If you're new to charting, you might wish consider reading through a quick tutorial. To get you started, let’s shine a light on some of the features that chartists and non-chartists alike can use in day-to-day trading. These instructions will be based on the Charts page unless otherwise noted.

Overlay Charts

An overlay chart is when you have two or more different stocks or indices displayed on the same chart. It’s a way to see relative performance—whether one is over-or under-performing another. It can be a measure of relative strength, and it’s also handy if you’re looking at correlations between stocks, sectors or asset classes. (See gold vs. the S&P 500 in figure 1.)

Here’s how you do it:

Overlaying two charts - SPX and Gold

FIGURE 1: COMPARING NOTES.

Use the overlay function in thinkorswim to compare two securities, in this case the S&P 500 Index (SPX, candlestick) to the price of gold (purple line). For illustrative purposes only.

  1. Look in the upper-right-hand corner for the Studies button. Click on it, then hold the cursor over Add Study to see the expanded menu.
  2. Hold the cursor over Compare With at the bottom of that menu. You’ll see for example a list of default index symbols like DJX and SPX, as well as Custom Symbol at the top. If you click on one of the index symbols, or enter another symbol when you click on Custom Symbol, a chart for that symbol is overlaid on the chart.

For example, if you have a chart for the S&P 500 Index (SPX), you can choose from the list of indices to pull up a line chart that will be displayed along with the SPX chart. The vertical axis on the left-hand-side will be scaled for the overlay symbol so the high-and-low range fits on the same chart as the original symbol. You can also add more indices, or even a custom symbol. Figure 1 plots SPX against gold futures (/GC).

To take overlays one step further, click on the Style button in the upper-right-hand corner, then click on Settings. Now in the Chart Settings window, click on the Price Axis tab and check the Show Price as Percentage box. That switches the vertical axis on the left-hand side of the chart to show the percentage change each symbol has had from the first date on the left-hand side of the chart, to the current day. This makes it easier to compare performance of two symbols with different prices.

Backtesting*

You can test trading strategies based on technical indicators, and see the profit-and-loss performance right on the charts. The charts have what we call “Strategies,” which are simulated long-and-short entry and closing points determined by a technical indicator. You can code your own strategy, which is beyond the scope of this article, but here's how to get started. Refer to figure 2 below:

Simple backtest of a strategy using Bollinger Bands

FIGURE 2: REAL TEST, FAKE MONEY.

Backtest a strategy first. Then view the entry and exit points on the chart, as well as a p/l before committing real dollars. For illustrative purposes only.    

  1. Click on the Edit Studies icon in the upper-right-hand corner.
  2. In the window that pops up, click the Strategies tab on the upper-left corner.
  3. On the left-hand-side you'll see a list of the default strategies available. To make a strategy engage, you need to add commands that will show both "long entry (LE) and "short entry" (SE), at a minimum.
  4. For practice, look for the BollingerBandsLE and BollingerBandsSE strategies in the list. Those are the long-entry and short-entry commands based on Bollinger bands. Double-click on each one and it will be added to the list of studies and strategies on the charts in the main body of the Edit Studies and Strategies window.
  5. Click the Apply button in the lower-right-hand corner of the window, then the OK button.

You should see “BollingerBandsLE” and “BollingerBandsSE” labels on the chart, indicating simulated buying and selling 100 shares of stock based on the Bollinger Band test. To see the profit and loss of those simulated trades, place the cursor directly on one of the labels, and right click to open a new menu. Click on Show Report in that menu to open the Strategy Report window. There you’ll find the buy-and-sell signals, and profit-and-loss data for the strategy.

And by the way, if you want to buy or sell the chart’s stock shares for real, right click in the chart’s main body and select Buy or Sell from the drop-down menu. Plus, on the far-right-hand side of the chart window, you’ll see tabs for Trade, Time and Sales, Level II, etc. This lets you add windows with those features next to the chart window. That can basically set up charts as your go-to page for stock and futures trading needs.

A final note on backtesting: The old adage (and standard financial disclaimer), past performance does not guarantee future results, is of particular importance when using backtesting for strategy selection

Looking Into The Future

OK, not even thinkorswim has a crystal ball. But the Charts tab let you see future dates to the right of the current date. This helps you locate upcoming earnings and dividend dates, for example, as well as helps you extend drawings like trend lines into the future so you can identify possible price targets. The process? Refer to figure 3 below:

Where might it go from here? Probability curve.

FIGURE 3: PEEKING AT THE FUTURE.

By adjusting the chart to stop 50 bars from the right (shaded area), you can view future earnings and dividend dates. Add a probability cone (purple curve line) to estimate the probability range in which a stock will trade prior to those dates. For illustrative purposes only. Past performance does not guarantee future results.

  1. Click on the Style button in the upper-right-hand corner and click on the Settings choice in the drop-down menu.
  2. Click on the Time Axis tab in the Chart Settings window.
  3. Now look for the Expansion Area control. You can enter a number in the field for bars to the right—say, 50—then click the Apply button on the window's bottom-right-hand corner.

That will add empty space to the right of the current date on the chart (see figure 3). Once you’ve done that, you can extend a trend line or other drawing into that space. Place the cursor directly on the trendline and right click. Select Extend to Right from the drop-down menu and you’ll see that line in those future dates.

A study that’s built specifically for those future dates is the Probability of Expiring Cone (figure 3 also). This draws the upper-and-lower bounds of a stock’s or index’s price range that theoretically encompasses a pre-defined level of probability.

One way to add the cone study is to click on the Edit Studies icon in the upper-right-hand corner and find ProbabilityofExpiringCone from the list of studies on the window’s lefthand side. Double click to add it to the list of chart studies. You’ll also find two fields to edit for the study. 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 . Set it to 95% to see a cone that covers two standard deviations, or 99%, to see a cone that covers three standard deviations. For more on probabilities, please refer to this primer.

These features really just scratch the surface of charting functionality. But hopefully you now have an idea of their scope and how to access them. Each of the described menus has other choices that lead you to other functions. Go ahead and continue to explore the charts to see just how hard you can make them work for you.

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*Backtesting is the evaluation of a particular trading strategy using historical data. Results presented are hypothetical, they did not actually occur and they may not take into consideration all transaction fees or taxes you would incur in an actual transaction. And just as past performance of a security does not guarantee future results, past performance of a strategy does not guarantee the strategy will be successful in the future. Results could vary significantly, and losses could result.

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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.

The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. 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.

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. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2018 TD Ameritrade.

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