how to create ratio charts in thinskscript

Daniel Parker

2 min read

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30-01-2025

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This article will guide you through creating ratio charts in ThinkScript, a powerful programming language used within the Thinkorswim platform. Ratio charts allow you to visualize the relationship between two different data series, providing valuable insights for trading and analysis. We'll cover the basics and explore some advanced techniques.

Understanding Ratio Charts

A ratio chart displays the ratio between two data points over time. This is particularly useful for comparing the performance of different assets, identifying trends, and spotting potential trading opportunities. For example, you might plot the ratio of one stock's price to another to see if one is outperforming the other. The resulting chart shows the relative strength of one asset compared to another.

Basic Ratio Chart in ThinkScript

The simplest approach involves directly calculating the ratio within your ThinkScript code. This example demonstrates creating a ratio chart of the price of AAPL relative to the price of MSFT:

# AAPL/MSFT Ratio Chart

declare lower;

plot Ratio = close("AAPL") / close("MSFT");

Ratio.SetPaintingStrategy(PaintingStrategy.LINE); 

This script calculates the daily closing price ratio of AAPL to MSFT and plots it as a line. close("AAPL") gets the closing price of AAPL, and close("MSFT") gets the closing price of MSFT. The ratio is then plotted using the plot function. SetPaintingStrategy determines how the line is displayed.

Remember to replace "AAPL" and "MSFT" with your desired symbols.

Enhancing Your Ratio Chart

Let's enhance the basic script to add more features, making it more informative and visually appealing:

# Enhanced AAPL/MSFT Ratio Chart

declare lower;

plot Ratio = close("AAPL") / close("MSFT");
Ratio.SetPaintingStrategy(PaintingStrategy.LINE);
Ratio.SetDefaultColor(Color.BLUE);
Ratio.SetLineWeight(2);

plot MovingAverage = Average(Ratio, 20); // 20-day moving average
MovingAverage.SetPaintingStrategy(PaintingStrategy.LINE);
MovingAverage.SetDefaultColor(Color.RED);
MovingAverage.SetLineWeight(1);

AddLabel(yes, "Ratio: " + Round(Ratio, 2), Color.BLACK); // Display current ratio value

This improved script adds:

• Color and Line Weight: We set the color and weight of the ratio line for better visibility.
• Moving Average: A 20-day moving average is calculated and plotted to smooth out the ratio and identify trends. You can adjust the period (20) as needed.
• Label: A label displays the current ratio value directly on the chart.

More Advanced Techniques

ThinkScript offers further possibilities:

• Different Timeframes: Calculate ratios using different timeframes (e.g., weekly, monthly) to analyze longer-term trends. Modify the close() function with appropriate timeframe parameters (e.g., close(period = "week")).
• Other Data Points: Instead of closing prices, use other data points like open prices, high prices, low prices, or volume for your ratio calculations.
• Custom Indicators: Combine ratio calculations with other ThinkScript indicators to create more complex strategies. For example, you could incorporate RSI or MACD to identify overbought/oversold conditions in the ratio.
• Alert Conditions: Set alerts based on ratio values crossing thresholds, providing trade signals.

Troubleshooting and Best Practices

• Error Handling: Add error handling to account for potential issues, such as missing data or invalid symbol names.
• Testing: Thoroughly test your script on historical data before using it for live trading.
• Data Quality: Ensure the data you are using is reliable and accurate.

By mastering these techniques, you can create powerful ratio charts tailored to your specific trading needs and analysis preferences. Remember to experiment and adapt the code to suit your individual strategies. Understanding ratio analysis and ThinkScript's capabilities will significantly enhance your technical analysis toolkit within Thinkorswim.