Smarter MACD Indicator for ThinkOrSwim (Free Download)

Overview

In this tutorial I build a smarter MACD indicator for ThinkOrSwim, starting from the built-in MACD code. The built-in MACD gives you a histogram, two lines and a zero line, which gets noisy and comes with a lot of settings. The Smarter MACD condenses all of that into one line that turns green or red, so you can read the trend at a glance and make decisions faster.

The indicator runs its MACD math on a higher time frame than your chart, picked automatically, and gives you two settings: lever, for how quickly it reacts to price, and mode, for how long it waits for confirmation before the color switches. It's a beginner-friendly build, a first step into multiple time frame indicators, and the next part of our MACD series.

Key Takeaways

What Is the MACD Indicator?

The MACD (Moving Average Convergence Divergence) indicator measures the gap between two moving averages of price. Gerald Appel developed it in the late 1970s. The standard version subtracts the 26-period exponential moving average (EMA) of the close from the 12-period EMA to get the MACD line, then plots a 9-period EMA of that line as the signal line. The histogram is the MACD line minus the signal line.

ThinkOrSwim's built-in MACD study uses those 12, 26 and 9 lengths by default and plots all of it: the Value and Avg lines, a histogram and a zero line. That's a lot to read at once, and on a busy chart it gets noisy. Our MACD explained tutorial starts the series, and the Smarter MACD continues it.

What the Smarter MACD Plots

The Smarter MACD plots one line in a lower panel, and the color of that line is the trend. The line is the built-in MACD's Avg line, the smoothed MACD, calculated on a higher time frame with the lengths you choose.

How the Higher Time Frame Mapping Works

The Smarter MACD reads your chart's time frame with GetAggregationPeriod() and picks the next time frame up for its calculations. I call this mapping. If you've never built a multiple time frame indicator, it's a good introduction to the idea.

A 15-minute chart isn't below 15 minutes, so it moves down a row and uses 30-minute data. The same goes for every boundary: a chart that equals a time frame in the list reads the next one up.

I use the higher time frame to make the line on your chart a little more reliable and accurate. When I added it on a 2-minute chart in the video, the line shifted as soon as it switched to 5-minute data. Our aggregation periods tutorial covers plotting larger time frames on smaller charts in more depth.

Smarter MACD Lever and Mode Settings

The Smarter MACD has two inputs, and each answers one question. Lever answers how quickly you want to react to price. Mode answers how long you want to wait for confirmation before the color switches.

Fast is my aggressive setting, and 3 and 8 is quickly becoming my favorite fast pair. I can be that quick because the higher time frame already adjusts for it. For Slow I used the 10 and 20 simple moving averages instead of something as slow as the 50 or 200, and Medium keeps the standard 12 and 26.

Mode sets the length of the average the line plots. Aggressive uses the lever's fast length, so Fast and Aggressive smooths over 3 bars. Conservative uses the slow length, so Fast and Conservative smooths over 8 bars and switches color later. Both replace the built-in MACD's default of 9.

The 3 levers and 2 modes give you 6 versions of the line. If 3 and 8 means something different to you, change the numbers or the average type in the code.

How to Build the Smarter MACD in ThinkOrSwim

The Smarter MACD build starts from ThinkOrSwim's own MACD code. These are the steps I follow in the video:

1. Click the Studies icon and search for MACD. Click the scroll icon next to the built-in MACD to open its code, and copy all of it.
2. Click Create, delete everything in the new study and paste the MACD code. I named mine TI_SmarterMACD.
3. Delete everything below the Avg line. Our own logic replaces the histogram and the rest.
4. Add the higher time frame variable and feed it into both close prices.
5. Add the lever and mode inputs with their switch statements, and change the Value plot to a def so only one line plots.
6. Add upSwitch and downSwitch, color the line and set its weight to 2.

To skip the build, download the finished study from this page and import it. Our 4-minute guide on how to import a study into ThinkOrSwim shows how.

How the Smarter MACD Code Works

The Smarter MACD code keeps the built-in MACD's math and changes what goes into it. Here are the blocks, in the order I wrote them.

Step 1: Pick the Higher Time Frame

GetAggregationPeriod() returns your chart's time frame, and aggregation period is ThinkOrSwim's term for time frame. Each line of higherTF checks whether the chart is below a time frame and, if it is, uses that time frame.

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The final else catches monthly charts and sends them to yearly data.

Step 2: Feed It Into the MACD

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Adding period = higherTF to both close prices makes the MACD read the higher time frame's closes. In the built-in study, Value is a plot. Here it's a def, so it calculates without drawing a second line.

Step 3: The Lever Switch

An input with a list in braces becomes a dropdown in the study's settings, and default marks the starting choice. The 3 defs start empty, and the switch fills them in for whichever lever you pick.

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The Slow and Medium cases follow the same pattern with their own numbers, and the Value line picks them up.

Step 4: The Mode Switch and the Plot

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outputLength takes the lever's fast or slow length, and the plot averages Value over that many bars. This is the built-in Avg line under a new name, smarterMACD, which the color logic references next.

Step 5: The Up and Down Switches

The two switches define the trend: the MACD line rising or falling compared with the previous bar. downSwitch mirrors upSwitch.

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upSwitch is 1 when the line is higher than on the previous bar and resets to 0 when it's lower. A flat bar carries the last value forward, so the trend holds until the line turns.

Step 6: Color and Weight

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AssignValueColor paints the line green where upSwitch is true, red where downSwitch is true and gray otherwise. A weight of 2 makes the line a little thicker than the default of 1.

What Each Setting Showed in the Video

The Smarter MACD settings move the color switch earlier or later on the same chart. At the end of the video I compared them on one drop and noted roughly when each combination switched trend afterwards:

The Fast lever with Aggressive mode switched first, and each step to a slower lever or to Conservative pushed the switch later. Choose the combination that fits your trading style, study the markets you trade with it, and then stick with it instead of fussing with lengths.

How I Use the Smarter MACD

The Smarter MACD is a trend read. Green says the higher time frame MACD is rising, red says it's falling, and the color change is where I look for reversals. The indicator works on any time frame, and I expect the daily chart is where most traders will use it. On a monthly chart it reads yearly data, which probably isn't that useful.

A color change alone isn't an entry. Check it against price and your levels, decide where your stop goes before you enter, and size the position so a stop-out costs a small, fixed share of your account.

To test MACD signals over history, our MACD signals backtester is the next stop in the series. For a scan built on the regular MACD, see the MACD crossover near zero line scan.

How to Customize the Smarter MACD

The Smarter MACD is built to be tweaked. To change what Fast means, edit the two lengths or the average type in the Fast case. Each case sets fastLength, slowLength and averageType, and everything below it reads those 3 values.

The higher time frame list works the same way. Each else if line maps one range of charts to one time frame, so editing a line changes which data that range of charts reads.

On a daily chart the line moves in steps: flat through the week, then a jump. Every daily bar in a week reads the same weekly close, so the line can only change when a new week starts. Intraday charts show the same effect on a smaller scale.

Smarter MACD Scans for Volatility Box Members

The Smarter MACD scans come from a members-only follow-up video for Volatility Box members. The indicator is tricky to turn into a scan, and the video shows the workaround.

Paste the indicator code into a custom scan filter and ThinkOrSwim shows the error "secondary period not allowed." The higher time frame variable asks for smaller time frames than the scan's daily aggregation can reach. The fix is to comment out the higher time frame lines, use a plain close, and set the filter's aggregation to the time frame the indicator would have used.

The scan then looks for the bar where the color flips. A green switch is a bar where upSwitch is true and wasn't true on the bar before, and a red switch is the same test on downSwitch. The scan plots one of the two, and the indicator's formatting lines go.

In the video, the green switch with a weekly aggregation returned about 46 symbols in the S&P 500, including Uber and Southern Company. The red switch turned up Microsoft. With a 30-minute aggregation and extended hours included, the red scan found Carnival (CCL), whose 15-minute Smarter MACD had turned red.

The Smarter MACD scans and the follow-up video are included with a Volatility Box membership. See Volatility Box membership pricing.

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