The Oscillator determines the direction (or trend) of based on the high, low, and closing price of the security. It then compares all three values (HLC/3) to the previous period’s values to determine how should be factored into the KVO. If the current period’s price is greater than that of the previous period, then is added. It is subtracted, however, if the price is less than the previous period. This utilization of is what makes it an accurate tracker of and a valuable confirmation indicator. This value is often called force or the “trend” line.
A fast and slow of the force are then calculated. The fast has a smaller window length, while the slow has a larger window. Traders can adjust the lengths of each in the input option menu, but we chose the standard 55 and 34 period lengths as the default settings. We are finally left with the actual KVO value after subtracting the slow from the fast .
The Oscillator uses a signal line similar to the and many other indicators. The default length for it is 13, but that length can also be adjusted in the input menu. A shorter length will result in more responsiveness but possibly more false signals and whipsaws.
The Chart and Interpretation:
The histogram shows the KVO series. Remember, since the Oscillator represents the difference between the fast and slow , the KVO is when it is greater than zero and when it is less than zero.
When the KVO is greater than zero, the background on the chart is green, meaning that the trend is and traders should look to go long. On the flip side, the background is red when the KVO is less than zero meaning traders should look to go short.
The aqua line plotted on top of the histogram is the signal line.
Here is a quick summary of the histogram colors:
(if KVO > 0 and KVO > signal)
then (color = teal)
if (KVO > 0 and KVO < signal)
then (color = lime)
if (KVO < 0 and KVO < signal)
then (color = red)
if (KVO < 0 and KVO > signal)
then (color = pink)
Users can choose to have the candles change color to match the KVO histogram color by adjusting the setting in the input menu.
~Happy (and safe) trading~