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Klingler
Oscillator
Description
The
Klinger Oscillator (KO) was developed by Stephen
J. Klinger. Learning
from prior research on volume by such well-known
technicians as Joseph Granville, Larry Williams,
and Marc Chaikin, Mr. Klinger set out to develop a
volume-based indicator to help in both short- and
long-term analysis.
The
KO was developed with two seemingly opposite goals
in mind: to
be sensitive enough to signal short-term tops and
bottoms, yet accurate enough to reflect the
long-term flow of money into and out of a
security.
The
KO is based on the following tenets:
-
Price
range (i.e. High - Low) is a measure of
movement and volume is the force behind the
movement.
The sum of High + Low + Close defines a
trend. Accumulation
occurs when today's sum is greater than the
previous day's.
Conversely, distribution occurs when
today's sum is less than the previous day's.
When the sums are equal, the existing
trend is maintained.
-
Volume
produces continuous intra-day changes in price
reflecting buying and selling pressure.
The KO quantifies the difference
between the number of shares being accumulated
and distributed each day as "volume
force". A
strong, rising volume force should accompany
an uptrend and then gradually contract over
time during the latter stages of the uptrend
and the early stages of the following
downtrend. This
should be followed by a rising volume force
reflecting some accumulation before a bottom
develops.
-
By
converting the volume force into an oscillator
representing the difference between a
34-period and 55-period exponential moving
average with a 13-period trigger, the force of
volume into and out of a security can easily
be tracked. Comparing
this force to price action can help identify
divergences at tops and bottoms.
Interpretation
Mr.
Klinger recommends the following guidelines for
using the KO:
-
The
most reliable signals occur in the direction
of the prevailing trend.
Strict stop guidelines (i.e., failure
to penetrate the zero line or a violation of
the trigger line) should remain in force.
-
The
most important signal occurs when the KO
diverges with the underlying price action,
especially on new highs or new lows in
overbought/oversold territory.
For example, when a stock makes a new
high or low for a cycle and the KO fails to
confirm this, the trend may be losing momentum
and nearing completion.
-
If
the price is in an uptrend (i.e., above an
89-day exponential moving average), buy when
the KO drops to unusually low levels below
zero, turns up, and crosses its trigger line.
If the price is in a downtrend (i.e.,
below an 89-day exponential moving average),
sell when the KO rises to unusually high
levels above zero, turns down, and crosses its
trigger line.
While
the KO works well for timing trades in the
direction of the trend, it is less effective
against the trend.
This can create problems for the trader
trying to "scalp" a trade against the
prevailing trend. However,
when the KO is used in conjunction with other
technical indicators, better results can be
achieved. William's
%R is recommended for confirming an
overbought/oversold price condition and Gerald
Appel's MACD
is recommended for confirming the short-term
direction of price.
Tip
Stephen
Klinger suggests the following formula for viewing
the cumulative flow of money into and out of a
security:
cum(kvo())
Plot
a 13-period moving average of the formula as a
trigger line for entering buy and sell trades. |
