How to Draw Price Channels in ThinkOrSwim

thinkScript tutorialFreeIntermediate8 min videoNov 23, 2022

Draw price channels in ThinkOrSwim 2 ways: redraw a trendline as a channel, or use the regression channel tool. SPY on 5-minute, 1-hour and daily charts.

Download Watch the build

On this page

Overview

In this tutorial I draw price channels in ThinkOrSwim two ways, on a chart of SPY, the S&P 500 ETF. The first is manual: connect the swing lows or swing highs with the trendline tool, then redraw the line as a channel. The second is the regression channel tool, which draws the channel for you from a start point and an end point.

I practice both methods on 3 timeframes for 3 kinds of traders: the 5-minute chart for day traders, the 1-hour for shorter-term swing traders and the daily for a longer horizon. I also show the channel settings I use and how to save them as the default for every new channel.

Key Takeaways

A manual price channel in ThinkOrSwim starts as a trendline: connect the swing lows in an uptrend or the swing highs in a downtrend, right-click the line and choose Redraw as channel.
The ThinkOrSwim regression channel tool needs only 2 points, a start and an end, and draws the whole channel automatically.
My channel settings are cyan lines at width 3, with the 0.5 coefficient turned on as a dashed white midline. Save as default applies them to every new channel.
In the video, recorded in November 2022, SPY's 5-minute and 1-hour channels were uptrends inside a daily downtrend channel that began at the 479.98 high at the start of 2022.
The regression channel was faster but less exact, most visibly on the 5-minute chart. On the 1-hour and daily charts it came close to the manual channels.

What Is a Price Channel?

A price channel is a pair of parallel lines that contain price while it trends. In an uptrend, the lower line connects the swing lows and the upper line runs parallel to it through the highs. In a downtrend, the upper line connects the lower highs and the lower line runs parallel underneath.

A channel shows 3 things at a glance: the top of the trend, the bottom of the trend and its direction. An optional midline halfway between the two lines marks the middle of the channel.

A Channel Inside a Channel

Price channels on different timeframes nest inside each other. In the video, SPY's most recent 5-minute channel sat inside the 1-hour channel, and both were uptrends. Zoomed out to the daily chart, both sat inside the daily channel, which was still very much a downtrend.

SPY daily chart in ThinkOrSwim with a downtrending channel from the 479.98 high and a smaller uptrending channel from the October 2022 low — SPY on the daily chart on 11/22/22: the daily downtrend channel from the 479.98 high, with the shorter uptrend channel inside it and price near 399.90.

That's the reason to draw channels on more than one timeframe. A day trader working the 5-minute uptrend could see that the daily trend still pointed down. Our research on whether larger time frames reduce false signals is a related read on checking more than one timeframe.

How to Draw a Price Channel With the Trendline Tool

The manual price channel in ThinkOrSwim starts with a trendline. I start on a clean 5-minute chart of SPY. The menu names below are the ones ThinkOrSwim showed when I recorded the video in November 2022, and the screenshots come from that session.

Zoom out so you can see the whole trend. In an uptrend, pick out the most obvious swing lows. I found 3.
Click Drawings, open Drawing Tools and pick the trendline.
Click and drag from the first low to a later one, so the line connects the lows as closely as it can. I call them points A, B and C.
Right-click the line and choose Redraw as channel. ThinkOrSwim adds a second line, parallel to the first.
Drag the second line up to the highest point of the trend.
Right-click the channel and choose Extend to the right, so the channel keeps drawing as price fills it in.

ThinkOrSwim Drawings menu open to Drawing Tools with the trendline tool highlighted — The trendline tool sits under Drawings, then Drawing Tools.

SPY 5-minute chart with a trendline from the 390.04 low to a higher low at 393.67 — Step one on the SPY 5-minute chart: a trendline across the swing lows, starting at the 390.04 low.

SPY 5-minute chart in ThinkOrSwim with the trendline redrawn as a channel and the upper line moved to the swing high — After Redraw as channel, the parallel line is dragged up to the high of the trend.

The bottom of the channel is the line through points A, B and C. The top is the parallel line through the highest points of this particular trend.

Price Channel Settings in ThinkOrSwim

The price channel settings in ThinkOrSwim open from the right-click menu: choose Edit properties. Here you can rename the channel and change the color, style and width of its lines.

ThinkOrSwim channel Properties window with a cyan curve at width 3 and the 0.5 coefficient line checked as a white dashed line — My channel properties: cyan lines at width 3, with only the 0.5 coefficient line visible, dashed and white.

Setting	Section of the window	My setting
Color	Curve properties	Cyan
Style	Curve properties	Solid line
Width	Curve properties	3, thicker than the platform default
0.5 coefficient	Channel curve properties	Visible, dashed, width 1, white
0.25 and 0.75 coefficients	Channel curve properties	Not visible

The 0.5 coefficient is what draws the 50% midline between the two channel lines. By default you probably won't see one, so tick its Visible box. The 0.25 and 0.75 rows are there too if you want quarter lines.

The window also has left and right extension settings, which keep the lines extending past price action and can help you spot possible supply and demand zones. When the channel looks the way you want, click Save as default. ThinkOrSwim then draws every new channel with your custom settings.

Drawing the 1-Hour and Daily Channels

The manual method on SPY's 1-hour chart works the same way as on the 5-minute chart. Zoomed out, there were more lows to connect, and the shorter-term trend was still clearly up. I connected low number one with a later low, chose Redraw as channel, dragged the second line to the topmost point of the trend and extended it to the right.

The daily chart was a downtrend, so the channel starts from the highs instead. I connected 3 lower highs along the top, starting with the high at the beginning of the year. Then I redrew it as a channel, moved the parallel line down to the bottom of the trend and extended it to the right.

SPY daily chart with a downtrend channel from the 479.98 high in early 2022 and a smaller uptrend channel inside it — The daily SPY channel: a downtrend from the 479.98 high at the start of 2022, with the October to November uptrend channel inside it.

Those are 3 manual channels, on the 5-minute, 1-hour and daily charts, all drawn with the trendline tool.

How to Use the Regression Channel Tool

The regression channel tool in ThinkOrSwim draws a channel automatically from 2 inputs: a starting point and an ending point. A linear regression channel is built around the straight line that best fits price between those points, with parallel lines above and below it.

Optional: click Drawings and Create drawing set, so the regression channels stay separate from your manual ones. I named mine Regression Channel.
Pick the Regression Channel tool from the drawing tools.
Set the starting point, such as the swing low where an uptrend began.
Set the ending point, such as the current bar. ThinkOrSwim draws the channel between the two.

The Regression Channel on 3 Timeframes

The regression channel on the 5-minute chart was not as clean or as exact as the manual one. It still made the uptrend plain to see, with a general sense of the top and the bottom of the trend, from 2 points and with little adjusting.

SPY 5-minute chart in ThinkOrSwim with a rising regression channel drawn from the 390.04 low — The regression channel on the SPY 5-minute chart, started at the 390.04 low.

On the 1-hour chart, I went from the low to the current bar. For something drawn from only a start and an end point, it did a pretty good job.

SPY 1-hour chart with a rising regression channel from the 348.11 low in October 2022 and a smaller channel inside it — The regression channel on the SPY 1-hour chart, from the 348.11 low in October 2022, with the shorter-term channel inside it at the right edge.

On the daily chart, the starting high and the current bar gave the downtrending channel. The regression approach was a lot faster on all 3 timeframes. The accuracy I gave up showed most on the 5-minute chart, and on the longer timeframes the result was close to the manual channels.

Trendline Channel vs Regression Channel

The trendline channel and the regression channel trade accuracy for speed. The table sums up how they compared in the video.

	Trendline tool (manual)	Regression channel tool
Points you choose	2 or 3 swing lows or highs, then the opposite side of the trend	A start point and an end point
Speed	Slower: zoom out, connect, redraw, adjust	Faster: 2 points and little adjusting
Accuracy	Precise placement, with some judgment involved	An approximation of where the trend hovers
In the video	Clean channels on all 3 timeframes	Least exact on the 5-minute, close on the 1-hour and daily
Best for	Learning how channels work	A quick, objective read of trend direction, top and bottom

The manual approach is key to understanding how channels work. Placing the points takes judgment, and choppy price action makes it harder. If you're in a time crunch, the regression channel gives you the top, the bottom and the overall direction of a trend, done objectively and much quicker. You can also use both.

How I Use Price Channels

A price channel gives a quick sense of the top of a trend, the bottom and its overall direction. Draw the channel on the timeframe you trade and check it against the timeframe above it, the channel inside a channel idea from the video. Extending the lines to the right shows where the channel sits as new bars print.

Price at a channel line tells you where it sits within the trend, and it's a filter rather than an entry by itself. Decide where your stop goes before you enter, and size the position so a stop-out costs a small, fixed share of your account.

For the moment a trend changes character, read our research on how to recognize when a trend reverses and on early trend signs. If you draw channels every day, link the trendline or regression channel tool to a button on a custom ThinkOrSwim toolbar. For a channel that an indicator plots for you, see our Keltner Channel Wedges indicator.

Common Problems and Fixes

Most price channel problems in ThinkOrSwim come down to a setting in the Edit properties window.

No midline. Right-click the channel, choose Edit properties and make the 0.5 coefficient visible.
New channels ignore your colors and widths. Click Save as default after you set them.
The channel stops at the last point you placed. Right-click and choose Extend to the right, or turn on the right extension in Edit properties.
The regression channel looks loose on a 5-minute chart. It's an approximation. Draw that one by hand, or move the start point to a clearer swing.
Manual and regression channels pile up on one chart. Keep them in separate drawing sets from the Drawings menu.

More free ThinkOrSwim tutorials are on the thinkScript page.

Download

How to Draw Price Channels

Download How to Draw Price Channels for ThinkOrSwim.

Download free

Video: How to Draw Price Channels, built line by line

8 minutes on YouTube.

Watch on YouTube

Questions

How do I draw a price channel in ThinkOrSwim?

Pick the trendline from Drawings, Drawing Tools, and connect 2 or 3 swing lows in an uptrend or swing highs in a downtrend. Right-click the line, choose Redraw as channel and drag the parallel line to the other side of the trend. Right-click again and choose Extend to the right to carry it forward.

How do I add a midline to a price channel in ThinkOrSwim?

Right-click the channel and choose Edit properties. Under the channel curve properties, make the 0.5 coefficient visible. That draws a line halfway between the two channel lines. I set mine to a dashed white line with a width of 1, then click Save as default so every new channel has it.

What does the regression channel tool do in ThinkOrSwim?

The regression channel tool draws a channel automatically from 2 points, a starting point and an ending point. It centers the channel on the straight line that best fits price between them. It is faster than the manual trendline method but less exact, which showed most on the 5-minute chart in the video.

Which is better, a trendline channel or a regression channel?

The trendline channel is more exact because you place every point, but it takes time and judgment. The regression channel takes 2 points and much less time, at the cost of some accuracy. I use the manual method to understand how a channel works and the regression tool when I am short on time.

How do I extend a price channel to the right in ThinkOrSwim?

Right-click the channel and choose Extend to the right. The lines then continue past the last point you placed, so you can see where the channel sits as new bars print. The Edit properties window for the channel also has left and right extension settings.

How do I save my channel settings as the default in ThinkOrSwim?

Right-click a channel, choose Edit properties and set the color, style, width and coefficient lines you want. Then click Save as default. ThinkOrSwim draws every new channel with those settings. Mine are cyan lines at width 3 with a dashed white 0.5 midline.

What timeframe should I draw price channels on?

Match the timeframe to how you trade. In the video I used the 5-minute chart for day traders, the 1-hour for shorter-term swing traders and the daily for a longer horizon. A look at the timeframe above yours helps too: the 5-minute and 1-hour channels were uptrends sitting inside a daily downtrend.

What is a channel inside a channel?

A channel inside a channel is a shorter-timeframe channel that sits within a longer-timeframe one. In the video, SPY's 5-minute uptrend channel sat inside its 1-hour uptrend channel, and both sat inside the daily channel, which was still a downtrend from the high at the start of 2022.