Thinkscript Compound Value
Technical Analysis is not as simple as just guesswork, and historical data plays an important role in determining the movements on charts. Indicators like Thinkscript Compound Value are used to predict the movements precisely, and to be prepared for any market moves in advance. There is a lot to dive deep into Compound Value, starting with the functioning, and what it is used for.
What Compound Value is Used For?
Thinkscript Compound value is an indicator that can be used to predict bar values, by calculating the compound values according to the rules.
The rule states the bar number should be greater than the length of said bar, and the visible data value is returned as a result.
The basic advantage of using Thinkscript Compound Value with the historical data is that it is used to study recursion. That means, if a certain set of values and chart movements were seen in the past, and historical data with set parameters is observing same patterns, you may have accurate movement predictions on the chart with Thinkscript compound value.
How Does Thinkscript Compound Value Work?
It is relatively easy to use Thinkscript Compound value than some of the other complicated technical analysis indicators.
All you need is the script for Thinkscript Compound Value and the values you want to use. It is a Thinkscript function in Thinkorswim, you can find it under "function" -> "other" and you can read more about it here.
The best part is that using the Fibonacci sequence it calculates starting from the third bar, and previous two numbers. This way, you get the plot for a chart value that you can use for technical analysis.
The plot will look like 1, 1, 2, 3, 5 while 1 being the historical data. The coding is pretty simple and doesn’t need much expertise either to get it working, however you need to understand the basics for execution and a bit of debugging if needed.
How to Make Thinkscript Compound Value Work?
The execution part is comparatively a lot simpler than to understand how it works.
You just need the length of bar, visible data, and historical data. If you get the coding right, and have it tested or copied from a trusted source, you just need to enter the values and that should make it work.
Just make sure that you are using the code from a trusted source such as Thinkscript’s own website or even if you are copying it from some forum, ensure that it is not tampered with to get optimal results for your bar value.
Things to Keep in Mind with Thinkscript Compound Value
While Thinkscript Compound Value is a great indicator and has a good accuracy rate too, there are some lags expected as well, and one should not be relying completely on the indicator for any financial decisions.
A user on the useThinkscript forum discovered a flaw that it does not work if you use more than one in the same study.
The suggested adding a line of code defining a BarNumber(), the code is shown below.
And here is what the code produces:
Other users are discussing how to get the function to work using conditional orders, but there does not seem to be a solution as yet.
How to Trade with Thinkscript Compound Value?
Trading with the Thinkscript Compound value for any commodity or stock is relatively simple. If your execution is done right, and you have right historical data, you should be back-testing first to ensure that your trading strategies are accurate.
Once you have tested the strategy and data, the thinkscript compound value indicator becomes of crucial part of your trading indicators.
If the bar of your candle is above the line of compound value on the chart, that means the stock is in uptrend and you can safely long the stock. However, if the candle closes below your compound value, that means, according to historical data, the stock is not performing well, and shorting it might be a better choice.
Common Errors with Thinkscript Compound Value
There are also a few common errors that can get your results wrong, or you will end up facing some issue with the execution.
These include not entering the right bar value, choosing the wrong historical data, and of course the time frame. The larger timeframe you choose on a particular chart, the accuracy for Thinkscript Compound Value increases.
It is effective on the smaller timeframes as well, but LTF charts can be volatile in certain markets, so you need to be careful while testing it on such charts.
Thinkscript compound value is a great indicator for those who have expertise with the coding and advanced technical analysis. Since it involves a lot of historical data, back-testing and coding, it is not as simple as some of the other indicators. But of course, the results can be far better and accurate too if you compare them with any of the other indicators.
The Fibonacci numbers plot can also be used for predicting how much a stock can go up or down where there is no historical data available such as support or resistance in the past.
That helps you gauge supply and demand in a better manner. So overall, it is totally worth it to go with the Thinkscript Compound Value if you are up for a bit of coding and learning.
But, if you are not that good with the code, and might need some additional help getting through it, you can always get some help on the learning center for Thinkscript.
Thinkscript Compound Value is a function designed to initialize studies with recursions, so it might not be as helpful for the All-Time high values, or relatively newer stocks where there is less data available, or the movements can not be predicted in the markets with high volatility.
So, for financial decisions, it would not be worth completely relying on a single function or indicator. Capital preservation and right execution goes a long way than flukes. Yet, the Thinkscript Compound Value is comparatively reliable and has low error ratio as well.