It may go without saying, but trading stocks will require you to spend time looking at stock charts. A lot of time in fact. Charts provide a whole host of information about a stock beyond just the price and volume. Traders also use charts to spot trends, identify support and resistance levels, and mark entry and exit points. Fortunately, TD Ameritrade’s Thinkorswim platform provides easy-to-use and customizable charting options. The software has hundreds of indicators and tools for nearly any level of trader. While the default chart settings may not look like much, you can quickly change that. In this video, Steve from FloatChecker will take you through the setup of a Thinkorswim stock chart with some popular indicators and studies.
Thinkorswim’s charting features can become overwhelming, so we’ll focus on the following 5 tools to get you started. As you get more familiar with the platform, it will get easier to use and you’ll feel more comfortable customizing your own charts.
Volume. Along with price, volume is considered a key indicator of the direction of a stock. Thinkorswim initially sets the volume bar graph to a neutral color regardless of whether the stock is up or down for the given timeframe. To change the colors to red or green, click on “Appearance” under the Chart Settings option and switch the bars to the same color as the ticks. You can change the tick and volume bar colors here as well. It may also be distracting to have the volume bars located too closely beneath the candlesticks in the chart. To remove the volume from the main chart area, click on “Equities” under the Chart Settings and deselect the volume subgraph. You can then place volume under the chart by adding it through the “Studies” option.
VWAP. Volume weighted average price, or VWAP, is shown by a line representing the average price of a stock during the day weighted by volume. Many investors will base their trading strategy off of whether a stock is pulling back to the VWAP or breaking above the VWAP. It is generally thought that when the price of a stock is above the VWAP, traders have a bullish sentiment that the stock may continue to trend higher. In contrast, when the price is below the VWAP, traders generally have a more bearish sentiment that the stock will struggle to move higher during the trading day. You can add VWAP to your chart using the “Studies” selection and searching for the term. Thinkorswim adds upper and lower bands to the VWAP to help signify overbought and oversold levels. You can easily remove the bands if you find them distracting using the customization options.
Volume Profile. Thinkorswim allows you to display the trading volume at each price during the trading day through the volume profile. By default, it is shown vertically along the righthand side price axis. Traders often use the profile to help identify areas of support and resistance. The red center line represents the “point of control,” or the price at which most of the trading has taken place. The yellow lines represent the “value areas,” or the range where most of the trading has taken place for the given timeframe.
Moving Averages. As the name sounds, moving averages are lines representing the average of a stock’s price over a given period of time. Common moving averages include 50 day and 100 day, but day traders may use shorter averages such as 9 day and 20 day. Moving averages can also be simple or exponential, the latter giving more weight to a stock’s recent prices. Moving averages are popular indicators and traders may use them to identify trends, find support and resistance levels, and choose to enter into trades, such as when a shorter moving average crosses over a longer moving average in a so-called “golden cross” event.
Relative Strength Indicator. Also known as RSI, this commonly used indicator is said to measure the speed or rate of change in a stock’s price. As the RSI oscillates between 0 and 100, a stock is widely considered to be overbought when the RSI goes above 70 and oversold when it falls below 30. Traders also use RSI to spot divergences from the trend in the stock’s price to identify potential trading opportunities. This is just one momentum indicator to get you started. You could also look into adding additional indicators such as the Moving Average Convergence Divergence or MACD.
These 5 studies should help you get started with setting up your chart on Thinkorswim. Many traders suggest not relying on one study alone. Try using a combination of studies as you develop your own trading style. After a while, it will become easier for you to add different indicators and make your own customizations. Give it a shot!