Thinkorswim Keltner Channels
Thinkorswim offers a wide array of indicators and tools that make it easier for you to technically analyze and monitor the stocks and their movements. Keltner Channels are one such indicator and are a great way to get bullish and bearish trend signals in the market.
We will explain how to use Keltner Channels in your techncial analysis and trading, and also some of the best options to add this functionality to Thinkorswim.
The Keltner Channels are two lines placed above and below a moving average. These sort of enclose the moving average graphically, and are the measure of recent price movements for the said stock.
How Do Keltner Channels Look?
Keltner Channels in the Thinkorswim portal are two lines, that are placed above and below a moving average, and their colors can be chosen by the user to make the most out of their trading experience. Similarly, you can also change the difference between them based on their core fundamentals.
How Do Keltner Channels on Thinkorswim Work?
Keltner Channels use the ATR (Average True Range) as an offset measure between them and the moving average instead of standard deviation.
If you use the default configuration, the distance between these channels and the moving average is ATR*ATR.
This sounds pretty simple, right? Of course, it is a simple indicator to use and shows the trend. If the ATR is going higher, and the candle closes above the upper channel, that is interpreted to be a bullish signal and vice versa.
Not only are the Keltner Channels on Thinkorswim used to gauge a possible uptrend or downtrend, but they are effective in stable or sideways markets as well.
The upper and lower channels can be taken as overbought and oversold trend lines in flat markets.
How to Use KeltnerChannels on Thinkorswim?
The next thing one must be aware of is how you can use Keltner Channels on Thinkorswim and how to activate them. It is pretty simple, and the default settings are in place already.
You just have to go to the list of indicators and activate Keltner Channels from there.
The Thinkorswim portal is not just about making the indicators easy to use but it is also great with configuration. You can choose the channel colors through the settings icon, and make some changes to the code as well as the parameters that are used.
Parameters for Thinkorswim Keltner Channels?
There are several parameters that can be used on Thinkorswim for Keltner Channels, that include displacement of the study in bars, factor by which ATR value is multiplied to calculate the distance, length or the number of bars being used to calculate the average, price of a stock, average type to be used and true range average type.
With all these parameters, you have the option to configure them on the Thinkorswim portal for your trading strategy and goals.
Trading with Keltner Channels on Thinkorswim
Keltner Channels can signify uptrends and downtrends and can also indicate oversold or overbought market conditions.
However, at the same time for those who would like to scalp the markets, Keltner Channels can be useful since it can show signs of strength or weakness on the market as well based on ATR numbers.
A key factor to remember is the distance between these two channels. The greater the distance, the greater the chance there can be a trend reversal for the stock.
Certain significant movements can be predicted by the Keltner Channels on Thinkorswim. A few of these important movements that you must know about are:
- Uptrend: Uptrend is quite simple, and doesn't need many skills to gauge. On default configuration, if a candle closes above the upper channel, it would mean the price is in an uptrend and it can go higher.
- Downtrend: Similarly, if a candle closes below the lower channel, that means the stock is under high selling pressure and has more potential to go downwards.
- Flat Movement: Similar distance between two channels, and no candle closing above or below the Keltner Channels bars would mean that there isn’t much to do here, and the price is going sideways.
Custom Codes for Thinkorswim Keltner Channels
There are several custom codes available on the internet as well, or you can integrate your code into Thinkorswim for Keltner Channels. Yet, you need to know the parameters behind and have sufficient knowledge of the ATR, Channels and trend to ensure that you can use these effectively.
These custom codes are great for those who are trading with their strategy on Thinkorswim and have a plan in mind along with some supplementing indicators such as RSI or Volume.
Option 1 for Implementing Keltner Channels on Thinkorswim: User Script
The first one is based on Thinkorswim Keltner Channel feature, it used 3 ATR bands which means it has 6 Keltner Channels, they have standard deviation of 1,2,3,-1,-2,-3
If you reach the upper 3 ATR level then it is not a good time to enter but is a good time to exit your trade. Colored bands can be added using this code.
Option 2 for Implementing Keltner Channels on Thinkorswim: TTM Squeeze
This is built into Thinkorswim although it is not officially created by TD Ameritrade, you can go to "charts", then "studies" -> "Quick Study" -> "John Carter's Studies" -> "TTM Squeeze".
The indicator will look as below, with the colored bars helping you to interpret what is happening.
You can read more about this indicator on TD Ameritrade here. And also we talk more about here in our Bollinger Bands Squeeze scan on Thinkorswim article.
The overall idea is that TTM Squeeze looks at the relationship between Bollinger Bands and Keltner Channels which can help you spot consolidations and breakouts.
Option 2 for implementing Keltner Channels on Thinkorswim: TOSIndicators
Another option to download is this indicator from TOSIndicators.
They also have a helpful video, embedded below, where they show the Thinkscript code required.
TOSIndicators also have paid premium tools available, the main one being 2 versions of Volatility Box which range cost $169 per month or $254 per month for both.
Best configuration for Keltner Channels on Thinkorswim
The consensus for best configuration for Keltner Channels on thinkorswim would be 20 EMA and 10 for the average. That should allow you to have better accuracy, and good results overall.
Drawbacks of Keltner Channels on Thinkorswim
Keltner Channels are a great indicator that can be used for ongoing market trends. However, it isn't suitable for positioning yourself in the market before the trend starts to change.
This way, your position might be a bit late and that is not something one would want. A late position doesn't only mean that you have lesser profit chances, but it also means that you are taking more risk, and in case of sudden reversal, you will have to incur more loss.
That is why, it should mostly be used for monitoring the trends and price movements, while you are in the trade so you can decide between staying in that particular trade or cutting it out earlier than you would have expected.
So, it is simply not enough to rely on KeltnerChannels while you are on Thinkorswim. It can be used as an aid for sure, but you need to master some other indicators and learn chart patterns and more to accurately check what you are dealing with and base your trading decisions upon that data wisely.
You should also take a look at A Guide to Relative Volume/RVOL Indicator on Thinkorswim and Thinkorswim VWAP scanner.