The Klinger Oscillator is an oscillator which was created by Stephen Klinger to show the long-term money flow, in and out of a stock, or in our case a cryptocurrency. The oscillator works by comparing volume moving within a cryptocurrency, while looking at the cryptocurrency’s price action.
The makeup of the Klinger Oscillator (KO)
The KO is created through two lines. The first line is the KO line. This is the blue line which is created with volume force and the current trend. The second line is the black signal line. This is a simple 13 day SMA. Through using the two lines, buy and sell signals are generated for traders. Below, we can see the KO indicator.
A bearish indicator is when the black 13 day SMA crosses above the blue KO line. Below we can see two bearish crossovers. The first occurring on 23/11/20, with the second occurring recently on 10/01/21 as shown below.
BTC/USD bearish crossovers
Bullish crossovers are the opposite of bearish crossovers, occurring when the KO line crosses above the 13 day SMA. Below on the daily time frame we can see two occur. The first occurring 15/12/2020 with the second occurring 28/01/2021 as shown below.
Support / resistance during crossovers
When there is a KO crossover, sometimes support or resistance can be found with the KO. Below, after the first bullish crossover which occurred, the KO line provided support during the run for BTC. This occurrence on the daily timeframe or less e.g. 6 hourly / 1 hourly / 15 mins is somewhat rare. The KO providing support or resistance is more likely to occur on the daily or weekly timeframe.
BTC/USD support during crossovers
A bearish divergence occurs when the overall KO indicator trend is moving up, while the price is moving down. Below we can see an example of a famous BTC drop when BTC moved ‘unexpectedly’ from $6200 USD to almost $3000 USD, losing 52% of its value. However the KO indicator demonstrated that a clear divergence was occurring, as shown below. The bearish divergence is a sell signal.
BTC/USD bearish divergence
Bullish KO divergence
A bullish divergence is the opposite of a bearish divergence and provides buy signals. The bullish divergence occurs when the indicator has a downwards trend, while the direction of price is either flat or moving upwards. Below we can see an example with BTC. During the period between the two dashed green vertical lines, the KO indicator moved down while price was stationary thus resulting in a bullish divergence. From here, BTC continued its parabolic movement and soared to $40000 USD from $20000 USD when the divergence occurred.
BTC/USD bullish divergence
KO indicator conclusion
In conclusion, the KO indicator is great at spotting trend switches during periods of high volatility. However, during periods of sideways trading, the indicator is relatively useless. This is due to the high number of false signals provided.