What is Klinger Oscillator?
Stephen Klinger invented the Klinger oscillator in 1977 to forecast long-term trends in money flow while simultaneously identifying short-term oscillations. Furthermore, it anticipates price reversals in a financial market by comparing volume to price comprehensively. The volume of a security is the number of units traded per unit of time.
The Klinger Oscillator is based on the concept of force volume, which includes volume, price trends, and temp (a series of if/then statements that include volume/price).
To improve overall relevance, accuracy, and reliability, the Klinger oscillator can be paired with other prominent indicators such as the Stochastic oscillator.
The Klinger oscillator can also be used in combination with trendlines, price channels, or triangles to confirm price breakouts or breakdowns.
The Klinger Oscillator Formula
KO=34 Period EMA of VF−55 Period EMA of VF
KO= Klinger Oscillator
VF= Volume Force
Price Direction Interpretations Using the Klinger Oscillators
The Klinger Oscillator is difficult to compute, but it is based on the concept of force volume, which accounts for volume, trend (positive or negative), and temperature (based on many inputs and if/then statements). The oscillator is generated using this data by examining the distinction between two exponential moving averages of force volume using separate time frames (typically 34 and 55). The goal is to demonstrate how the volume passing through the securities affects its long-term and short-term price direction.
The Signal Line
To generate buy or sell signals, a signal line (13-period moving average) is used. This method is quite similar to indications generated by other indicators such as the moving average convergence divergence (MACD). While these are the primary indications produced by these indicators, it is crucial to note that these methodologies may produce a large number of trading signals that may be ineffective in sideways markets.
When an asset is in an overall uptrend—for instance when it is above its 100-period moving average and the Klinger oscillator is above zero or moving above zero—traders can purchase when the Klinger oscillator rises above the signal line from below.
Klinger observed that when a stock was in an uptrend and then sank to extraordinarily low levels below zero before rising above its signal line, it was a good time to go long.
When an asset is in a downtrend, traders may sell or short-sell when the Klinger oscillator falls below the signal line from above. This was especially notable, according to Klinger, because the indicator had experienced an out-of-the-ordinary rise over zero.
Some traders use the zero line to signify the shift from an uptrend to a downtrend, or vice versa. While such indications do not always coincide with price fluctuations, a rise above zero helps confirm a rising price, while a move below zero helps confirm a dropping price.
Klinger Oscillator and Divergence
Divergence is also used by the Klinger oscillator to indicate when the indicator's inputs are not verifying the direction of the price move. When the value of the indicator rises while the price of the securities falls, this is a bullish sign. When the price rises but the indicator falls, this is a
negative signal. To produce trades, divergence can be combined with signal line crossovers. For example, if a bearish divergence emerges, the next time the Klinger crosses below the signal line, a sell or short-sell could be initiated.
The downside of the Klinger Oscillator
The oscillator's two major functions, crossovers, and divergence are prone to producing a large number of false signals.
Signal line crossovers occur so frequently that it is difficult to determine which are worth trading and which are not. The indication may crisscross the zero line numerous times before moving in a consistent direction, or the indicator may fail to move with the price, resulting in a missed trading opportunity.
Divergence can be valuable, but it frequently comes too early, causing the trader to miss a significant portion of the trend, or the divergence fails to result in a price reversal at all. Furthermore, because divergence does not occur at all price reversals, it is not a viable technique for detecting all possible price reversals.
The Klinger oscillator should only be used in combination with other technical indicators or price action analysis.
Disclaimer: There are potential risks relating to trading and investing and you should not trade with money that you cannot afford to lose however, for those that educate themselves and adopt appropriate risk management strategies, the potential update can be significant. Please note that all opinions, research, analysis, and other information are provided as general market commentary and not as specific investment advice.
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