Good day everybody,
Welcome to CryptoGod-1's blog on all things crypto. Today we are going to continue the series on Technical Analysis and why it can be such an important asset for new or experienced traders. In this series I am covering some of the different Technical Analysis and Indicators which can be used to help determine market movement and sentiment when trading. For Part XIX the focus will be on the Klinger Oscillator.
The Klinger Oscillator
The Klinger oscillator was created by Stephen Klinger in 1977 and was created to determine the long term trend of money flow of a particular asset, while at the same time remaining sensitive enough to detect any short term changes or fluctuations. This is done by comparing the volume flowing through an asset price movement and converting that into an oscillator. The Klinger Oscillator will show the difference between two moving averages based on that price. Traders will watch out for divergences on the oscillator indicator and this can signal any potential price reversals about to happen. As with any oscillator, a trader can add a signal line to add additional trade signals.
Calculating the Klinger Oscillator
To calculate the Klinger oscillator a trader requires taking the difference between two different moving averages, Exponential Moving Average (EMA) in this case. The result of this is then fed into the oscillator. A simple rule of thumb to follow is when the shorter EMA is of greater value than the longer EMA, then it indicates the asset is in an uptrend. This is because with typical technical analysis a trader would look out for when a 50-period moving average breaks above the 200-period moving average, as it would be a bullish signal. This is because the shorter period is more reactive to recent price fluctuation than a longer period. Generally, the Klinger oscillator is complex to calculate as it makes use of the idea of force volume.
To calculate the Klinger oscillator is as follows:
Volume Force = volume X trend X temp X 100
Volume = the number of units of the asset traded over a specific period of time
Trend =a combination of the high, open, and close price of an asset. These are compared to the previous reading to determine the trend. If the trend is positive, it is given a +1 value, while if it is negative, it is given a -1 value.
Temp = this involves multiple input variables, referred to as dm and CM. These are variant and depend on multiple if/then statements.
dm = this is equal to the high minus the low of the price
CM = this is equal to the sum of the dm and the difference between the high and low of the previous period. If the CM is equal to zero then the temp takes a value of -2. If the CM is not equal to zero, then it is equal to the absolute value of two time (dm/CM – 1)
To prevent the final figure being a decimal, the volume, trend, and temp are multiplied together and also multiplied by 100. This is the above mentioned volume force. It is important to make use of 34 and 55 for the typical EMA's.
The below image from Investopedia shows the formula broken down:
How to use the Klinger Oscillator
The Klinger Oscillator is made up of a centreline along with two lines, generally shown as a blue line and a red line.
The red line is known as the "Klinger", while the blue line is referred to as the "signal" line which is generally taken from a 13-period moving average. To make the most of the Klinger Oscillator, when these lines cross over each other or above / below the signal line it indicates a critical piece of analysis., mainly buy and sell signals.
Buy Signal
The buy signal is formed when the two lines are below the centreline and produce a crossover between the two lines. Generally this is when the indicator, the red line, crosses above the signal line, the blue line. This is a strong indication of an uptrend.
Sell Signal
The sell signal is formed when the two lines are above the centreline and produce a crossover between the two lines. Generally this is when the indicator, the red line, crosses below the signal line, the blue line. This is a strong indication of a downtrend.
Divergence
Divergences are used to identify when the indicators inputs are not confirming the direction of the assets price movements. It is taken as a bullish signal when the value of the indicator is heading upwards while the assets price is continuing to fall. Similarly, it is taken as a bearish signal when the assets price is rising while the indicator is falling.
Below are examples of the Klinger Oscillator from Binance on a BTC/USDT 30 minute chart, highlighting buy and sell signals along with divergences.
The Klinger Line is shown in Red, the Signal Line is shown in Blue, while I have added the Zero line as close to zero as possible, with it shown at -5.16.
The first image below shows simple crossovers which indicate a buy and a sell signal. You can see where I have highlighted showing the initial signal for an uptrend, which was followed by a downtrend signal. Finally it was followed by another uptrend signal. The only disadvantage with the Klinger Oscillator as shown here is to fully realise the change in trend can mean the price has already begun to reverse as it requires a few candles to confirm. Also, there can be many crossovers as shown which can make it difficult to know exactly which one is the correct one to follow for a trend reversal.
The second image, below, shows a false signal from a crossover, where the Klinger Oscillator hinted that a bullish trade would be good to enter. This is because the Klinger line crossed above the Signal line while both were below the Zero line. It was in fact a false signal as the price moved sideways before dropping more. The blue line on the chart shows the direction the price moved from the point where the Klinger Oscillator indicated the price should be bullish. Even once the Klinger and Signal lines moved above the Zero line, the price action did not show much improvement. This would also be an indication of a divergence if the trader waited to see how the price moved, and seeing the price fall while the Klinger Oscillator rose.
Limitations of the Klinger Oscillator
The Klinger oscillator has its limitations, with the two main functions of crossovers and divergence being prone to producing false signals. There are signal line crossovers which happen so frequent that it can become difficult for a trader to filter out the decent ones compared to the rest. Zero line crossovers can also be an issue, as the indicator can criss-cross the zero line multiple times before moving in a sustained direction. Another issue can be the indicator failing to move with the assets price, which can then result in a missed opportunity.
Divergence is a useful part of the oscillator, but it often happens much too early and will result in a missed trade or a mistimed trade with lower profits than what could have been. The divergence can also happen when a price reversal fails to happen, giving a false signal to traders. Another thing to note is that not all reversals are accompanied by a divergence, therefore it can not be reliable alone for spotting a reversal.
Conclusion on using the Klinger Oscillator for TA
As a trader, whether it be day trading or long term trading, using the Klinger Oscillator can be very beneficial in spotting the long-term trend of money flow for a particular asset while also being able to spot any short term trend changes. The Klinger Oscillator is shown with a centreline and two lines, generally red and blue. The red line is the Klinger line and the blue line is the signal line. When these lines produce crossovers or cross the centreline it can be a signal to buy or sell. The oscillator also produces divergences, which in conjunction with crossovers can help to produce stronger indications of reversals in trend. However, the oscillator produces a lot of false signals because of the frequency of the crossovers that happen. The divergences can also happen when a price reversal fails to happen, or they can happen much too early meaning any potential trade could be opened too soon. Therefore the Klinger Oscillator should not be used as a standalone indicator, instead it should be used as a confirmation piece of technical analysis.
As stated whether you are experienced or new, Technical Analysis can always be a useful asset when trading. Just remember it is not guaranteed and nobody can predict the future, no matter how certain you believe the patterns to be. It is always just another tool of the trade to help make more informed decisions when trading. It can be easy to get caught into false signals with a large number of crossover or spotting a divergence and the Klinger Oscillator can show an upcoming trend reversal which never takes place or a lot sooner than it actually happens.
It is important to use the Klinger Oscillator along with other TA to get the correct signals for understanding the strength of a trend. Always zoom out, if trading on a 15 minute chart check the 1 hour or 4 hour or even 1 day chart to give you a better idea of a trend reversal via the Klinger Oscillator, along with checking the trend strength of the larger overall trend compared to short term ones.
You can find the previous parts to the series here:
Technical Analysis - Part I - Exponential Moving Average (EMA)
Technical Analysis - Part II - Relative Strength Index (RSI)
Technical Analysis - Part III - Bollinger Bands (BB)
Technical Analysis - Part IV - Moving Average Convergence Divergence (MACD)
Technical Analysis - Part V - On-Balance Volume (OBV)
Technical Analysis - Part VI - The Average Directional Index (ADX)
Technical Analysis - Part VII - The Aroon Indicator
Technical Analysis - Part VIII - The Accumulation/Distribution Indicator (A/D)
Technical Analysis - Part IX - The Supertrend Indicator
Technical Analysis Part X - Parabolic SAR Indicator
Technical Analysis Part XI - Support & Resistance Levels
Technical Analysis Part XII - Fibonacci Retracement Levels
Technical Analysis Part XIII - The Awesome Oscillator
Technical Analysis Part XIV - The Arnaud Legoux Moving Average
Technical Analysis Part XV - Ichimoku Cloud
Technical Analysis - Part XVI - Footprint Charts
Technical Analysis - Part XVII - Heikin Ashi Candlesticks
Technical Analysis - Part XVIII - True Strength Indicator
Also feel free to check out:
I hope this post was beneficial and of some use, and I plan on continuing the series with the next instalment focusing on Connors RSI. Of course each technical analysis provides different beneficial information, so combining your most trusted and favourite ones can be the best strategy for finding entry and exit points when trading.
Have a great day.
Peace. CryptoGod-1.
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