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First introduced in a December 1997 'Stock and Commodities Magazine' article by Stephen I. Klinger, the Klinger Volume Oscillator is a volume-based indicator developed with the intention to be both short-term sensitive and long-term accurate. In fact, KVO measures the sum of in (accumulation) and out (distribution) volumes for a given security according to the daily trend, then smoothes it by calculating the difference of its long moving average form its short one.
KVO is used to confirm the trend tendency as well as to detect the possible trend shifts. For example, in the case of an up-trend, a buy signal is generated when the KVO crosses its trigger line (the 13-day KVO exponential moving average) from below after a big drop below the zero level.
In the case of a down-trend, a sell signal is generated when the KVO crosses its trigger line from above after reaching unusual high levels above zero. The KVO can also generate signals when a divergence between the close price and the KVO occurs.
The KVO function you can get here, named klinger_volume_oscillator, is based on a simple formula. It increases a sum by the positive value of the daily volume if today's trend (i.e. close and high and low mean) is greater than yesterday's; otherwise, it decreases that sum by the same volume. A 55-day exponential moving average of the sum is then subtracted from a 34-day one.
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
