How to create ratio charts in Thinkscript, explained

ThinkScript is a specialized scripting language created by TD Ameritrade for use within its thinkorswim trading platform. It enables traders and investors to customize and enhance their market analysis by creating personalized studies, technical indicators, trading strategies, and alerts. Unlike general-purpose programming languages, ThinkScript is designed with simplicity and clarity in mind, making it accessible to a broad range of users, including those without formal programming experience. It is tailored specifically for financial market analysis, allowing traders to implement custom solutions that address their unique trading styles and objectives.

The language was developed to address the limitations of standard trading tools, which often provide a fixed set of indicators and strategies that may not fully meet the needs of all users. ThinkScript allows traders to bridge this gap by writing scripts that define their own technical analysis criteria or trading logic. For example, a trader could create a custom moving average that reacts to specific market conditions or an alert system that notifies them when a stock meets their predefined criteria, such as crossing a certain price threshold or experiencing a surge in volume.

ThinkScript’s integration into thinkorswim is seamless, providing users with a dynamic environment where they can visualize their scripts directly on charts or apply them in market scanners. For instance, a trader using ThinkScript can develop a custom indicator to highlight price patterns, such as breakouts or reversals, and see these patterns displayed in real-time on their charts. This capability enhances decision-making by allowing users to focus on the conditions most relevant to their strategies.

One of the powerful features of ThinkScript is its ability to backtest trading strategies. Traders can write scripts that define entry and exit points for trades based on specific market conditions and then use historical data to evaluate how their strategy would have performed in the past. This functionality provides valuable insights, helping traders refine their strategies before applying them in live markets. For example, a trader could test a strategy that buys a stock when its price crosses above a 50-day moving average and sells when it drops below a 20-day moving average. By running this backtest, they can assess the strategy’s profitability and make adjustments if necessary.

ThinkScript also supports real-time alerts and market scanning. Traders can use it to create conditions that trigger notifications when certain criteria are met, such as a stock reaching a specific price level or forming a particular candlestick pattern. Additionally, the language can be used to scan the entire market or a selected group of securities to identify opportunities that align with the trader’s strategy. For instance, a trader might scan for stocks that are showing bullish momentum based on a custom indicator created in ThinkScript.

The simplicity of ThinkScript’s syntax and its focus on financial analysis make it accessible even to beginners. However, it is also robust enough to handle more advanced tasks, making it a versatile tool for traders of all experience levels. To support its users, TD Ameritrade offers extensive documentation and examples within the thinkorswim platform. Additionally, the language benefits from a vibrant community of traders and developers who share scripts, tips, and ideas. This collaborative environment enables users to learn from others and implement sophisticated solutions without starting from scratch.

ThinkScript represents a significant enhancement to the thinkorswim platform, providing traders with the flexibility to tailor their trading environment to their specific needs. Whether used for creating custom technical indicators, developing and testing trading strategies, or setting up personalized alerts, ThinkScript empowers traders to take control of their analysis and decision-making processes. Its role within the thinkorswim ecosystem underscores the platform’s commitment to innovation and user customization, making it a preferred choice for active traders and investors seeking a competitive edge in the markets.

Creating ratio charts in ThinkScript within the thinkorswim platform involves defining a relationship between two stocks or indices by dividing the price of one by the other. This type of chart is often used to analyze relative strength or performance between two securities, helping traders identify trends or divergences.

To create a ratio chart, you need to write a simple ThinkScript formula that calculates the ratio of the two selected securities. This process begins in the thinkorswim platform by accessing the custom scripting tools. Navigate to the charting interface and select the option to create a new study. In the ThinkScript editor that appears, you will write the script for your ratio calculation.

The basic syntax involves referencing the price of the first security and dividing it by the price of the second security. For example, to compare the performance of Stock A (symbol “AAPL”) with Stock B (symbol “MSFT”), you would input a script that calculates `close(“AAPL”) / close(“MSFT”)`. The `close` function retrieves the closing price of the specified security, and the division operator (`/`) performs the ratio calculation.

You can customize the script further to add flexibility. For instance, you can define the securities as input parameters, allowing you to change them easily without modifying the script directly. This approach makes the chart reusable for comparing different pairs of securities. The script might look like this:

input symbol1 = “AAPL”;
input symbol2 = “MSFT”;
plot ratio = close(symbol1) / close(symbol2);

Here, `symbol1` and `symbol2` are user-defined inputs that can be adjusted from the study settings in thinkorswim. The `plot` function creates the visual representation of the ratio on the chart.

Once the script is written, save the study with a meaningful name, such as “Ratio Chart.” Apply the study to your chart, and the ratio will appear as a plotted line, reflecting the relative performance of the two securities over time. You can further enhance the chart by adding moving averages, trendlines, or other indicators to analyze the ratio’s behavior more effectively.

By creating ratio charts in ThinkScript, traders gain a powerful tool for evaluating relative strength, spotting trends, and making more informed trading decisions. This functionality showcases the flexibility of thinkorswim and its ability to adapt to various analytical needs.