Klinger Oscillator is a volume-based technical indicator that is used to determine the direction and strength of the trend and its potential reversal. This indicator compares the price movement of an asset and the volume at which it is traded.
It was developed by Stephen Klinger in 1977 to predict short-term trend reversals and also determine the long-term trends. The oscillator is now a powerful and handy tool available for all types of traders, who use it with other technical indicators to make informed trading decisions that align with their investment goals and risk appetite.
While the Klinger Oscillator is represented by an oscillator graph, a single line of Moving Averages is also added to it, which generates additional signals. It is also used to deduce divergence, which provides traders with an early signal for a price reversal.
Like with other technical indicators, the traders are required to remain careful in using the Klinger Oscillator and should not solely rely on the signal generated by it. Instead, the signal generated by this oscillator should be confirmed with corroborative signals from other technical indicators.
Klinger Oscillator Formula
The key component in calculating the Klinger Oscillator is the volume, which refers to the number of securities traded in a particular period. The securities with higher volume indicate higher liquidity, while lower volume indicates lower liquidity.
Klinger Oscillator uses a predetermined objective formula which involves a 34-day Exponential Moving Average of the Volume Force (EMA-34), indicating a short-term period, and a 55-day Exponential Moving Average of the Volume Force (EMA-55), indicating a long-term period.
The formula to calculate the Klinger Oscillator is: Klinger Oscillator = (EMA-34) – (EMA-55)
Advantages and Disadvantages of Klinger Oscillator
As is the case with other technical indicators, the Klinger Oscillator also comes with its own set of pros and cons. So before using this indicator, a trader must be aware of its advantages and shortcomings.
Pros of Klinger Oscillator
- It is used to establish the liquidity of a security.
- Since this indicator uses volume as a measuring metric, the results are more reliable than several other technical indicators.
- It is used to predict short-term trend reversals and also forecast long-term scenarios.
- It is used for various trading strategies like divergence, signal line crossovers, and zero line crossovers.
Cons of the Klinger Oscillator
- It can generate false signals during a volatile market.
- It is difficult to be understood by novice traders.
- It should not be used as a standalone marker for trend reversals.
Klinger Oscillator versus Other Volume-based Indicators
The Klinger Oscillator is one of the many volume-based technical indicators used by traders. Some other volume-based indicators are Volume Price Trend, Negative Volume Index, Chaikin Money Flow, and On Balance Volume. Here is how these indicators differ from the Klinger Oscillator.
- Volume Price Trend: It multiplies the volume of a stock by the percentage of the price change to measure momentum and the buying or selling pressure. It assists traders by indicating the strength of a trend.
- Negative Volume Index: It is a measure of the price movement based on the days with lower trading volume, thus providing the traders with an indicator about the direction of the trend.
- Chaikin Money Flow: It calculates the price movement by relating price and volume to the range between the high and low prices, thus providing an assessment of buying and selling pressure.
- On Balance Volume: This indicator only calculates the relation between volume and the closing price of the underlying asset, thus providing a less comprehensive measure of the trend.
How to Use the Klinger Oscillator in a Trading Strategy?
Klinger Oscillator can be used in several trading strategies, whether it be divergence, zero line crossover, or signal line crossover.
Divergence
When the Klinger Oscillator is moving in an upward direction but the price movement is downwards, it indicates a possibility for a bullish trend. On the other hand, when the Klinger Oscillator is moving in a downward direction but the price movement is in an upward direction, it indicates the possibility of a bearish trend. The traders can accordingly decide whether to buy the underlying asset or sell it.
Zero Line Crossover
Zero Line Crossover on the Klinger Oscillator is another indicator of a trend reversal. If the Oscillator crosses above the zero line, it indicates a potential buying opportunity. On the other hand, if it falls below the zero line, it indicates potential for selling.
Signal Line Crossover
In contrast to the Zero Line Crossover, if the Klinger Oscillator moves above the Signal Line, it indicates the potential for selling. However, if it moves below the signal line, it suggests the potential for buying.
How to Best Use the Klinger Oscillator in a Trading Strategy?
Klinger Oscillator is a good tool in deciding the price momentum of an underlying asset. It provides a comprehensive assessment about the direction of the trend by including the volume in its calculations. A trader can preempt the direction of the trend by using this Oscillator and subsequently decide whether to buy an asset or sell it to secure profit.
However, there is a possibility that the indicator generated by the Klinger Oscillator can be false, or may not materialise in the actual trend reversal. It can happen for a variety of reasons, including increased market volatility. It is for these reasons that it is recommended not to use the Klinger Oscillator in isolation. Rather, this indicator should be used by traders in coordination with other technical indicators, which can provide a better and comprehensive assessment of the trend direction and strength.
Conclusion
Klinger Oscillator is a technical indicator that is used to preempt a trend reversal and measure the direction and strength of a trend. Using this indicator can be beneficial for a trader if he or she knows and understands its advantages and disadvantages. It is always prudent to use multiple indicators to reach a definitive conclusion about the trend reversal, its direction, and its strength. Relying solely on one indicator can sometimes generate a false signal and may not prove helpful.
FAQs
What is a Klinger Oscillator?
The Klinger Oscillator is a technical indicator used in trading strategies. It measures the volume and price of an underlying asset to determine the direction and strength of a trend.
Is the Klinger Oscillator reliable for determining trend reversal?
Yes, the Klinger Oscillator is one of the reliable indicators; however, it is always advised to use multiple indicators to get a comprehensive and serious signal about trend reversals.
What are the disadvantages of the Klinger Oscillator?
One of the key disadvantages of the Klinger Oscillator is that it can generate a false signal, especially in turbulent market conditions.
Can I use the Klinger Oscillator to deduce divergence?
Yes, the Klinger Oscillator can be used to deduce divergence. When the Klinger Oscillator is moving in an upward direction and the price movement is downwards, it indicates a potential for buying. While there is potential for selling when the Klinger Oscillator is moving in a downward direction, and the price movement is in an upward direction.
Is the Klinger Oscillator better than other technical indicators?
Klinger Oscillator provides an indication about the trend direction and its strength. So the utility of this indicator depends on what a trader is seeking and whether or not this indicator is being used in coordination with other indicators.
