What Is the Klinger Oscillator?
Let me explain the Klinger Oscillator to you directly. I developed this indicator—wait, actually, Stephen Klinger did—to gauge the long-term trend of money flow while staying sensitive to short-term fluctuations. It compares the volume flowing through securities with their price movements and turns that into an oscillator. You'll see it shows the difference between two moving averages that go beyond just price. As a trader, you should watch for divergences on this indicator to spot potential price reversals. Like with other oscillators, you can add a signal line for more trade signals.
You need to use tools like trendlines, moving averages, and other indicators to confirm those signals. Also, pair the oscillator with chart patterns such as price channels or triangles to verify breakouts or breakdowns. Crossovers and divergences happen often, so always use this indicator alongside other technical methods.
Formula for the Klinger Oscillator
Here's the formula you need to know. The KO equals the 34-period EMA of VF minus the 55-period EMA of VF. VF stands for Volume Force, calculated as V times [2 times ((dm/cm) - 1)] times T times 100. V is volume, T is trend—plus 1 if (H + L + C) is greater than the prior period's (H-1 + L-1 + C-1), or minus 1 otherwise. H is high, L is low, C is close, dm is H minus L, and cm is the prior cm plus dm if the trend matches the prior trend, or dm-1 plus dm if not.
Calculating the Klinger Oscillator
To calculate it, start by noting the volume for the period, along with the high, low, and close prices. Compare this to the prior period to set the trend as positive or negative. Then calculate dm from the current high and low. Next, figure cm using dm and the prior cm—if it's the first time, just use dm. Compute the volume force (VF) from there. After that, get the 34- and 55-period EMAs of VF. For the EMA, use (C times A) plus (E times B), where C is the current VF, A is 2 divided by (X + 1) with X being 34 or 55, E is the prior EMA, and B is 1 minus A.
Interpretations for Price Direction
This oscillator is complex to calculate, but it's built on force volume, which factors in volume, trend, and various conditions. By looking at the difference between those 34- and 55-period EMAs of force volume, it reveals how volume affects the security's long-term and short-term price direction.
The Signal Line
You use a signal line, which is a 13-period moving average, to trigger buy or sell signals. This is similar to how the MACD works. Keep in mind these signals can be plentiful and not always effective in sideways markets.
The Uptrend
When an asset is in an uptrend—like above its 100-period moving average and the Klinger above zero or crossing above—you can buy when the oscillator moves above the signal line from below. I note that if a stock in an uptrend drops unusually low below zero and then crosses above the signal line, that's a good long position.
The Downtrend
In a downtrend, sell or short when the oscillator drops below the signal line from above, especially if it spiked unusually above zero. The zero line marks shifts from uptrend to downtrend or vice versa—a move above zero confirms rising prices, below confirms falling.
Klinger Oscillator and Divergence
The oscillator uses divergence to spot when its inputs don't match price direction. It's bullish if the indicator rises while price falls, bearish if price rises but the indicator falls. Combine divergence with signal line crossovers for trades, like selling on bearish divergence when it crosses below the signal line.
Klinger Oscillator vs. On Balance Volume
The Klinger uses price and volume for two EMAs, shows their difference, and adds a signal line. On balance volume is simpler—it's a running total adding positive volume if the close is above prior, subtracting if below.
Klinger Oscillator Limitations
Crossovers and divergences often give false signals. Signal line crossovers are frequent, making it hard to pick the good ones. Zero line crossovers can zigzag without sustained moves or miss opportunities. Divergence might happen too early, causing you to miss trends, or not lead to reversals. It's not always present at reversals, so don't rely on it alone. Always use the Klinger with other indicators or price action analysis.
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