Klinger Oscillator

Developed by Stephen Klinger (obviously this oscillator was named after him), the Klinger Oscillator is a technical tool which is used to assess the long-term trend of money flow while staying sensitive enough to discern short-term variations. The indicator compares the volume moving through stocks to the price fluctuations of the securities, and then translates the result into an oscillator. The Klinger oscillator displays the difference between two moving averages that are not only focused on price. Traders look for divergence on the indicator to indicate possible price reversals. A signal line, like other oscillators, can be added to provide extra trade signals.

What is the Klinger Oscillator?

The Klinger oscillator, like most oscillators, is based on variations between two specified exponential moving averages (EMA). An exponential moving average (EMA) is a statistical formula that is used to examine current data points by generating averages from a sequence of data.

The Klinger Oscillator is quite complicated to compute, however 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 difference 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.

Setting up the Klinger Oscillator
Setting up the Klinger Oscillator

Klinger Oscillator Strategy

The Klinger oscillator strategy is one in which the price and volume EMAs are calculated. When a shorter EMA (shorter time periods) has a higher value than a larger EMA (longer time periods), it indicates that the price of an asset is rising. In contrast, when a higher EMA gains more value than a shorter EMA, it indicates that the price of a given investment is falling.

The Klinger Oscillator consists of two lines, the Klinger Volume Weighted Average (KVWA) and the Klinger Momentum (KM). The KVWA is calculated using volume-weighted moving averages, while the KM is calculated using simple moving averages.

Buy Signal

The following could be your checklist for a buy trade:

  • When the asset being traded is in an overall uptrend.
  • When the signal line (red line) rises above zero and the histogram shows purchasing pressure (above the zero line).

Once these two events occur, you could do the following:

  • Open a buy position just immediately after the crossover happens.
  • Set your stop loss just below the nearest support level.
  • Set your take profit at the nearest resistance zone.
  • For good risk management, I would only pick the trade if your risk to reward ratio is 1:2 or more.
Klinger Oscillator Buy Setup
Klinger Oscillator Buy Setup

Sell Signal

The following could be your checklist for a sell trade:

  • When the asset being traded is in an overall downtrend.
  • When the signal line (red line) falls below zero and the histogram shows selling pressure (below the zero line).

Once these two events occur, you could do the following:

  • Open a sell position just immediately after the crossover happens.
  • Set your stop loss just above the nearest resistance level.
  • Set your take profit at the nearest support zone.
  • For good risk management, I would only only pick the trade if your risk to reward ratio is 1:2 or more.
Klinger Oscillator Sell Setup
Klinger Oscillator Sell Setup

Klinger Oscillator Pros & Cons

Pros

  • The Klinger Oscillator’s crossover function is easy to read even by novice traders.
  • It is a good indicator when it comes to riding trends and could be used to catch some good moves.

Cons

  • The Klinger Oscillator, through its crossover and divergence functions, may provide false signals sometimes.
  • Signal line crossovers occur so frequently that it is difficult to determine which are worth trading and which are not.
  • Divergence can be advantageous, but it frequently comes too early, causing the trader to miss a big portion of the trend, or it fails to result in a price reversal at all.
  • This indicator is better used in conjunction with other technical indicators or price action analysis, and not alone.

Conclusion

The Klinger indicator is ideal for both novice and experienced traders because it generates signals by taking into account two moving averages and transaction volume. A trader can quickly determine whether to go long or short. Crossovers and divergences in the signal line indicate trend reversals, and deviation from the signal line measures the intensity of those trends.

Some crossings might cause false breakouts, making it difficult to determine which crossovers are worth trading. A trader can reduce the chance of a false signal by waiting until the Klinger line deviates from the signal line on a long-term chart or by using auxiliary indicators such as the RSI indicator.

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