How to add an chandelier indicator in thinkorswim

hackread.official@gmail.com December 11, 2024

0 23 3 minutes read

how to add an chandelier indicator in thinkorswim

How to Add a Chandelier Indicator in Thinkorswim

Adding a chandelier indicator to Thinkorswim (TOS) can significantly enhance your trading analysis by providing a dynamic tool to identify potential trend reversals or breakouts. The chandelier exit indicator, commonly used by traders, is designed to trail a stop-loss based on volatility. Thinkorswim doesn’t come with a pre-installed chandelier indicator, but you can easily create and customize one using Thinkorswim’s script editor. Let’s break this process into simple steps.

What Is the Chandelier Indicator?

Before we dive into adding the indicator, let’s understand what it is:

The Chandelier Exit is a volatility-based indicator that sets a trailing stop-loss at a fixed multiple of the Average True Range (ATR) below a recent high for long trades, or above a recent low for short trades.
It’s useful for helping traders lock in profits during trends while protecting them from large losses.

Steps to Add a Chandelier Indicator in Thinkorswim

Step 1: Open Thinkorswim

Log in to your Thinkorswim desktop platform. If you don’t already have the platform installed, download it from the Thinkorswim website.

Step 2: Access the ThinkScript Editor

Thinkorswim allows you to write or import custom scripts using ThinkScript. To access it:

Go to the Charts tab.
Click on the Studies button at the top of the chart (it looks like a flask icon).
From the dropdown menu, choose Edit Studies.
In the new window, click Create to open the ThinkScript Editor.

Step 3: Write or Import the Chandelier Script

You’ll need a custom ThinkScript code for the chandelier indicator. You can either write it yourself or paste the code below into the ThinkScript Editor.

Here’s a sample ThinkScript for the chandelier exit indicator:

thinkscript

input ATRLength = 22;

input ATRMultiplier = 3.0;

input type = {default High, Low};  
def ATR = Average(TrueRange(high, close, low), ATRLength);

def HighestHigh = Highest(high, ATRLength);

def LowestLow = Lowest(low, ATRLength);  
def ChandelierExitLong = HighestHigh - (ATR * ATRMultiplier);

def ChandelierExitShort = LowestLow + (ATR * ATRMultiplier);  
plot LongExit = if type == type.High then ChandelierExitLong else Double.NaN;

plot ShortExit = if type == type.Low then ChandelierExitShort else Double.NaN;

LongExit.SetDefaultColor(Color.GREEN); ShortExit.SetDefaultColor(Color.RED);

Step 4: Customize the Parameters

Once you’ve added the script, you can customize the following parameters to suit your trading style:

ATRLength: The period over which the Average True Range is calculated. The default is 22, which represents roughly one month of trading days.
ATRMultiplier: Determines how far away the stop-loss is set from the high/low. The default is 3.0.

Click OK to save your custom study.

Step 5: Add the Indicator to Your Chart

To apply the chandelier indicator to your chart:

Return to the Edit Studies and Strategies window.
Search for your custom chandelier indicator in the Studies section.
Double-click on it or select Add Selected to include it on your chart.
Click Apply and then OK.

How to Use the Chandelier Indicator

The chandelier indicator will now appear on your chart as trailing lines:

Green Line: This represents the chandelier exit for long positions.
Red Line: This represents the chandelier exit for short positions.

Trading with the Chandelier Indicator

For long trades, exit the position if the price falls below the green line.
For short trades, exit the position if the price rises above the red line.

Tips for Optimizing the Indicator

Experiment with different ATR multipliers (e.g., 2.5 or 4.0) to adjust the sensitivity.
Backtest your settings on historical data to see how the indicator performs under different market conditions.
Combine the chandelier indicator with other tools like moving averages or RSI for better confirmation.