Klinger Volume Oscillator Indicator – Trading Strategy and Tips

The Klinger Volume Oscillator (KVO) is a trading indicator that measures the strength and direction of price action by analyzing price and volume data in a market. It is an excellent tool to determine the level of surge behind a trend and identify potential trend price reversals. 

This guide will help you understand the Klinger Volume Oscillator (KVO) indicator, its trading strategies, benefits, and limitations. Follow us as we demystify the indicator.

What is the Klinger Volume Oscillator Indicator?

The Klinger Volume Oscillator (KVO) is a technical indicator that analyzes the interplay between price action and volume in financial assets. Developed by the experienced trader and analyst, Stephen Klinger, in 1977, this indicator aims to identify the strength and direction of price trends.

The KVO consists of two main components:

• The Klinger Volume Line (KVO). The difference between two exponential moving averages (EMA) of volume forms this line. Specifically, the indicator calculates the EMA(34) of volume and subtracts the EMA(55) of volume to obtain the line. This formula helps to smooth out the volume data and emphasizes the relationship between volume and price movement.
• The Signal Line is a 13-period exponential moving average of the KVO. It acts as a trigger line, helping traders identify potential entry and exit points.

Here’s what the KVO indicator looks like on a price chart:

As you can see in the image above, the KVO is a sub-chart with two lines and values ranging from -600 to +600. It then creates a buy or sell signal when the KVO lines crossover occurs. 

How Does the Klinger Volume Oscillator Indicator Work?

The KVO works on the premise that when price and volume move in the same direction, it indicates a strong trend. In contrast, miscorrelation between price and volume may signal a potential trend reversal.

As such, this is what traders usually look for when trading the markets with the KVO indicator – a strong correlation or no correlation between price trend and volume.

The KVO indicator does its calculations in the following few steps.

KO = 34 Period EMA of VF−55 Period EMA of VF

Where:

• KO= Klinger Oscillator
• VF= Volume Force
• Volume Force = V × [ 2 × ((dm/cm) − 1)] × T × 100
• V= Volume
• T= Trend
• Trend = +1 if (H + L + C) > (H_-1+ L_-1+ Cv_-1)
• Trend = −1 if Above is < or =
• H= High
• L= Low
• C= Close
• dm = H −  L
• cm = cm_-1 + dm if Trend = Trend_-1​cm = dm_-1 + dm if Trend =/= Trend_-1

In addition, the EMA is calculated thus:

EMA = (C × A) + (E × B)

where:

• C = Current period’s VF​
• A = 2/(X+1), where X is the moving average
• period (34 or 55)
• E = Prior period’s EMA
• B = 1 − A

Technically, the indicator line rises when the value of the shorter-period 34 EMA exceeds the longer-period 55 EMA. However, the line falls when the reverse takes place.

How to Use The Klinger Volume Oscillator Indicator in Trading

Understanding the KVO’s interpretation before incorporating it into your trading strategy is essential. A primary way to effectively use the KVO in your trading decisions is to observe crossovers between the indicator’s lines. However, other techniques, such as zero line crossings and divergence, also help.

Below, we show you the different ways to use the Klinger Oscillator indicator in trading.

Crossovers

Crossovers are the most fundamental way of identifying buy and sell signals with the KVO indicator. Simply look out for signal line crossovers between the KVO and the Signal Line. A bullish crossover occurs when the KVO crosses above the Signal Line, indicating increasing buying pressure. Conversely, a bearish crossover happens when the KVO crosses below the Signal Line, suggesting rising selling pressure.

Zero-line Crossings

Like many other sub-chart indicators, the zero line on the KVO chart is also significant. When the KVO crosses above the zero line, it suggests a potential uptrend, while a cross below the zero line indicates a possible downtrend. These zero-line crossings can provide valuable insights into the overall market sentiment.

Divergence

Divergence occurs when price action and the KVO indicator move in opposite directions. 

A bullish divergence happens when the price makes a lower low, but the KVO forms a higher low. This may indicate that selling pressure is weakening, and a potential bullish reversal might be on the horizon. On the other hand, a bearish divergence occurs when the price makes a higher high, but the KVO forms a lower high. This could suggest that buying pressure is diminishing, and a potential bearish reversal might be forthcoming.

Klinger Volume Oscillator Indicator Trading Strategy Tutorial

Now that we understand how the KVO works and how to interpret its signals, let’s delve into a step-by-step tutorial on using the Klinger Volume Oscillator in your trading. This section considers using the Klinger indicator with two other indicators to eliminate false trade signals and improve results. These indicators are the Bollinger Bands and the Fibonacci retracement levels.

Use the Klinger Volume Indicator with Bollinger Bands

One effective way to enhance the KVO’s signals is combining it with another popular technical indicator – Bollinger Bands. Bollinger Bands consist of a middle band (typically a 20-period Simple Moving Average) and two outer bands that are standard deviations from the middle band.

When the KVO generates a crossover or a divergence signal, you can look for confluence with Bollinger Bands to strengthen the validity of the trade. 

To trade this Klinger Oscillator strategy, here’s what you need to do:

1. Launch your Klinger Volume Oscillator and the Bollinger Bands indicator into your main chart.

2. Observe a bullish crossover of the KVO when the Klinger Volume line crosses above the signal line.

3. Wait for price action to touch or cross the lower Bollinger Band suggesting an oversold condition.

4. Place a long position at the fulfillment of these conditions when a buy signal is given.

5. Place your stop loss beneath your most recent swing low.

For a bearish setup, you first need to wait for the market to be in a downtrend. Then wait for the KVO line to cross below the signal line while the price action touches or crosses the upper Bollinger Bands. 

Apply the same risk management described above to stop loss and take profit levels.

Use the Klinger Volume Indicator with Fibonacci Retracement Level

Another powerful technique to complement the KVO is to use Fibonacci retracement levels. Fibonacci retracement levels are horizontal lines drawn on a chart to identify potential support and resistance levels based on the Fibonacci sequence.

With this strategy, when the KVO generates a crossover or divergence signal, you can look for confluence with key Fibonacci retracement levels to validate the trade. Here’s how it can be done:

1. Launch your KVO indicator on the 1-hour or lower timeframe on your TradingView.

2. Because the indicator tends to be very choppy, go to its settings and adjust the time frame to 1 day.

What you’re doing is that you’re making KVO give you signals from the daily timeframe while you attempt to trade it on a smaller time frame. And this will help you catch even the little moves that seem insignificant on a daily timeframe. It’ll also help keep you on track with the larger market move.

3. Check for a bullish signal on the KVO when its line crosses above the signal line or when a bullish divergence occurs.

4. Launch your Fibonacci Retracement from the bottom of the most recent swing low to the top of the most recent swing high. Wait for price action to pull back to a significant Fibonacci support level, such as the 38.2% or 61.8% levels.

5. Once the retracement is over, with a candlestick confirmation, enter a long position.

6. Place a stop loss about anywhere beneath your entry fib level. Take your first profit when the price hits the 0 level of the Fib retracement or higher.

To enter a short position, ensure that the KVO line crosses below the signal line, or it makes a bearish divergence with price action. Confirm this with a retracement of price to any of the significant Fibonacci levels.

Klinger Volume Oscillator Indicator – Pros and Cons

Like any trading indicator, the KVO has its advantages and limitations. A primary usefulness of this indicator lies in the way it reflects market dynamics for a more confident trading decision. However, a downside to it is its ability to generate many false signals when not correctly used. Let’s explore some of its pros and cons.

Benefits of Using the Klinger Volume Oscillator Indicator

The Klinger Volume Oscillator indicator excellently combines price and volume data to reflect market dynamics comprehensively. This makes it a good indicator used by many experienced traders. 

One of the greatest benefits of this indicator is that it’s easy to use. All you need to do is to add the indicator and identify a scenario when there’s a crossover between the two lines. Then, when getting an extra confirmation from another indicator, the signal is highly accurate.

Some other benefits of the Klinger Volume Oscillator indicator are listed below.

Limitations of the Klinger Volume Oscillator Indicator

Perhaps, the biggest limitation of the Klinger Volume Oscillator indicator is that it’s not perfectly reliable when used in isolation, as it’s prone to false signals. For this reason, we recommended it for use with other relevant indicators. 

Another limitation is that its effectiveness depends on market conditions. When the market is trending, it puts up a good performance. But during ranging markets, KVO is less effective.

Key Takeaways

Frequently Asked Questions About Trading the Klinger Volume Oscillator Indicator

The following are some of the most frequently asked questions about the Klinger Volume Oscillator Indicator.

What is the best indicator to use with the Klinger Oscillator indicator?

The best indicator to use alongside the Klinger indicator mostly depends on the trader’s trading style and preferences. Yet, as mentioned earlier, Bollinger Bands and Fibonacci retracement levels are two common tools traders often use with the KVO.

Additionally, some traders may prefer to use Moving Averages, MACD, the Stochastic RSI, or RSI as complementary indicators. 

Is the Klinger Volume Oscillator a leading or lagging indicator?

The Klinger Volume Oscillator is considered a lagging indicator. This means it provides signals based on past price and volume data rather than forecasting future price movements. As a result, traders should be aware that by the time the indicator confirms a crossover or divergence on the chart, a portion of the price move may have already occurred.

Is the Klinger Oscillator indicator available on MT4?

The Klinger Oscillator indicator is not included as a standard built-in indicator on the MetaTrader 4 (MT4) platform.

If you want to use the Klinger Oscillator indicator on MT4, you can find custom versions developed by third-party programmers or brokers.

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