Klinger Oscillator Strategy – Understanding and Evaluating Performance

Out of the hundreds or thousands of technical indicators and oscillators that exist, the Klinger oscillator indicator is not one that comes to mind first. However, because it is not well known doesn’t mean it doesn’t work or that we should dismiss it.

The Klinger Oscillator is a momentum indicator incorporating volume, price, and trend. We combined this with a signal line to generate buy and sell signals and spot divergence between the price action and the indicator. 

In this article, we will analyze what the Klinger Oscillator is, how it works, and backtest it as a trading strategy.

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What is the Klinger Oscillator and how does it work?

The Klinger Oscillator is a technical indicator that measures the relationship between volume, price, and trend. It was developed by Stephen Klinger and published in Stock and Commodities Magazine in 1997. Thus, the strategy is relatively new.

The Klinger Oscillator can be fairly complex to calculate. Put simply, it is the difference between two exponential moving averages of volume force, typically the 34 VF EMA minus the 55 VF EMA. The volume force is an indicator that combines volume, price, and trend. 

A 13-day exponential moving average of the Klinger indicator is used to trigger buy or sell signals. This technique is very similar to signals created with other indicators, such as the moving average convergence divergence (MACD)

Typically the Klinger Oscillator generates signals when it crosses under or over the signal line. Nevertheless, it can also be used to identify divergences when the indicator inputs are not confirming the direction of the price move. For example, a bullish signal can be generated when the indicator’s value rises while the asset’s price falls.

Kingler Oscillator example

In order to better understand how the Klinger Oscillator works, here is an example.

Klinger oscillator indicator example

As you can see, in the beginning, the Klinger Oscillator is under the signal line. This means that we stay out of the market. However, when the Klinger Oscillator closes above the signal line, we buy the asset (green dot). 

If the oscillator closes under the signal line, we sell (red dot). As with any indicator, it can generate false signals; however, being frequently wrong is part of successful trading (as long as the winners recoup the losers). The day after we sell it, we repurchase it (green dot) and hold it till the end.

In this timeframe (daily – 50 days), the Klinger Oscillator strategy returned -1.42% in SPY (the ETF that tracks S&P 500), while buy and hold returned 0.05%. 

Klinger Oscillator trading rules

The trading rules are pretty simple:

  • BUY SPY when the Klinger Oscillator is over the signal.
  • SELL SPY when the Klinger Oscillator crosses under the signal.

Remember that the signal is the 13-day exponential moving average of the Klinger Oscillator.

Klinger Oscillator strategy backtest

We have backtested the strategy for S&P 500 (SPY) since 1993. The data is not adjusted for dividends and splits. Here is the equity curve:

Klinger oscillator strategy backtest

The strategy metrics, performance, and statistics can be broken down into the following numbers:

  • CAGR is 5.09% (buy and hold 7.46%)
  • Time invested in the market is 48.38%
  • Risk-adjusted return is 9.50%
  • The average profit per trade is 1.00%
  • The average holding time per trade is 11.5 days 
  • The win rate is 62.73%
  • Maximum drawdown is -45.87% (-56.47%)

As you can see, the Klinger Oscillator performs reasonably well, but didn’t manage to beat buy and hold. Since 1993 it has taken 363 trades with an average profit of 1% per trade. However, compared to many other oscillating indicators, the drawdown is perhaps a tad higher and probably too high for most traders.

Klinger Oscillator conclusion

To sum up, the Klinger Oscillator is a useful technical indicator to incorporate into your trading. The win rate is high, and the average gain is good. Nevertheless, we think it would work best combined with another indicator rather than on its own.

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What is the Klinger Oscillator, and how does it differ from other technical indicators?

The Klinger Oscillator is a momentum indicator that incorporates volume, price, and trend. It differs from other indicators by measuring the relationship between these factors, providing insights into potential buying and selling opportunities.

How is the Klinger Oscillator calculated, and what does it signify?

The Klinger Oscillator is calculated as the difference between two exponential moving averages of volume force, typically the 34 VF EMA minus the 55 VF EMA. It signifies the momentum and direction of the market by considering volume, price, and trend. A 13-day EMA of the Klinger indicator is used for generating buy and sell signals.

What are the trading signals generated by the Klinger Oscillator?

The Klinger Oscillator generates buy signals when it crosses above the signal line and sell signals when it crosses below the signal line. Additionally, it can be used to identify divergences, where the indicator’s movement contradicts the direction of the asset’s price, providing further insights.

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