How to use Klinger Oscillators When Trading Cryptocurrencies?

[TL; DR]

🔹 The Klinger Oscillator (KO) measures the long term inflow and outflow of money in an asset.

🔹 Traders can use the Klinger oscillator to predict changes in price movements.

🔹 The Klinger Oscillator uses two factors- volume and moving average.

🔹 Traders, usually, use crossovers and divergences to predict the asset’s price movements.




Introduction

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Successful trading of cryptocurrencies depends on the tools you use. That is where the choice of a trading platform is important. Gate.io is an example of a top crypto exchange that has various technical analysis indicators. Examples of such popular indicators are Relative Strength Index (RSI), Bollinger Bands (BB), Stochastic Indicator, Price Volume Trend indicator (PVT) and The Klinger Oscillator. In this article, we explore the Klinger Oscillator.


What is the Klinger Oscillator?

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The Klinger Oscillator, developed by Stephen Klinger in 1997, is an indicator that measures the long term inflow and outflow of money into an investment asset such as bitcoin. It compares the trading volume against the price of the asset over a period.

Traders use this measuring instrument to predict changes in price movements of a security. As such, it helps investors to detect potential trend reversal points which enhance them to make quality investment decisions.

The Klinger Oscillator uses two factors, trading volume and moving average. Basically, the moving average is the weighted average derived from the closing prices of an asset within a period, say 14 days. The moving average is a weighted value since it accords more value to the most recent data.

Volume refers to the total value of an asset that is purchased and sold within a period. The Klinger Oscillator comprises two lines, a blue and green one. However, some platforms can use other colours. You can observe the Klinger oscillator in the following chart, existing on Gate.io.


From the chart, you can identify the bottom blue and green lines. These make up the Klinger Oscillator.

The Klinger Line (35-period and a 55-period EMA) and signal line (13-period EMA) oscillate within the positive and negative territories, indicating either an uptrend or downtrend at any time. According to Klinger, the indicator measures the signal tops and bottoms as well as the money flow of an asset.


How to calculate the Klinger Oscillator

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The method of calculating the Klinger Oscillator is complicated. However, in most cases there is no need to calculate it since the trading platforms provide it to the users. What is important is to understand how to use it. Nevertheless, let’s give an outline of how to calculate it.
When calculating the Klinger Oscillator we use the concept of force volume. This involves three key aspects namely price trends, volume and temp. The formula is:


Before using this formula you need to calculate the volume force (VF). Here, we use the formula:

VF = V x [2 x ((dm/cm) – 1)] x T x 100
V stands for volume; T is for trend and VF for Volume Force. Also, you calculate the trend (T) using the following formula:
Trend = +1 if (H +L+C) > (H-1 + L-1 + Cv-1)
Here, H stands for high, L for low and C for closing price.


How to use the Klinger Oscillator

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There are several ways in which traders can use the Klinger Oscillator. Like most oscillators, a trader can get buy and sell signals using crossovers and divergences.

As said above, the Klinger Oscillator uses two lines, the Klinger line and the signal line. The blue line is the Klinger line while the green one is the signal line. When these lines cross each other they create trade signals.


Crossovers during uptrend

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When the signal line crosses above the Klinger line during an uptrend it is a buy signal. Another buy signal occurs if the crossover takes place below the centre line. Reversely, when the crossover occurs above the centre line it is a sell signal.


Crossovers during downtrend

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During a downtrend, if the indicator moves above the signal line it is a buy signal. On the contrary, if it moves below the signal line, it is a sell signal.

Divergence
A divergence occurs when the price line is moving in the opposite direction as the indicator. We have bearish and bullish divergences which give us different signals.

Bearish Divergence
A bearish divergence takes place when the indicator is rising while the price is falling. This situation is demonstrated between the two yellowish lines in the chart. Such a scenario indicates that the trader should close the existing trading position.

Bullish divergence
There is a bullish divergence when the indicator is falling while the price is rising. This situation creates a buy signal.

How to use the Klinger Oscillator on Gate.io

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Whereas we have discussed how to calculate and interpret the Klinger Oscillator, we need to find how to use it at Gate.io. First, note that you find the indicators below the price chart. To include it on your chart, click KO as shown on the chart.


Once you do that, you see the Klinger Oscillator on the bottom part of the chart. Check that on the next chart.


As you note on the chart, the Klinger Oscillator is now there. Therefore, you are ready to use it.


How effective is the Klinger Oscillator

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The Klinger oscillator is a reliable indicator. In the past, for example, it predicted some price movements accurately. For instance, in September 2021, it predicted BTC’s bullish momentum. Also in May, it accurately predicted the crypto crash that came to pass. The combination of EMA and volume makes it a trustworthy indicator.


Limitations of the Klinger Oscillator

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This indicator has a few limitations.

First, there are frequent crossovers making it difficult to tell when to enter or exit the trades. If a trader enters or exits at every presented opportunity he will overtrade.

Second, the divergences often show up too early which can mislead the traders.


Conclusion

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In short, the Klinger oscillator is a reliable indicator for both beginners and experienced traders. Since most trading platforms do the calculations, any trader can use it. The crossovers and divergences are the key aspects of the Klinger Oscillator as they help traders to make trade entry and exit decisions.




Author: Mashell C., Gate.io Researcher
This article represents only the views of the researcher and does not constitute any investment suggestions.
Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.