KST oscillator

In financial technical analysis, the know sure thing (KST) oscillator is a complex, smoothed price velocity indicator developed by Martin J. Pring.^[1][2]

A rate of change (ROC) indicator is the foundation of KST indicator. KST indicator is useful to identify major stock market cycle junctures because its formula is weighed to be more greatly influenced by the longer and more dominant time spans, in order to better reflect the primary swings of stock market cycle.^[3] The concept behind the oscillator is that price trends are determined by the interaction of many different time cycles and that important trend reversals take place when a number of price trends are simultaneously changing direction.

Formula

Four different rates of change are calculated, smoothed, multiplied by weights and then summed to form one indicator.^[4]

${\displaystyle ROC1=(Price/Price(X1)-1)*100;}$

${\displaystyle ROC2=(Price/Price(X2)-1)*100;}$

${\displaystyle ROC3=(Price/Price(X3)-1)*100;}$

${\displaystyle ROC4=(Price/Price(X4)-1)*100;}$

http://search.cpan.org/~kmx/Finance-TA-v0.4.1/TA.pod#TA_ROC_(Rate_of_change_:_((price/prevPrice)-1)*100)

Where price refers to current closing price and price(X1) refers to the closing price X1 bars ago.

${\displaystyle KST=MOV(ROC1,AVG1)*W1+MOV(ROC2,AVG2)*W2+MOV(ROC3,AVG3)*W3+MOV(ROC4,AVG4)*W4}$

Where MOV(ROC1,AVG1) refers to the AVG1 day moving average for ROC1

For short-term trends, Martin J Pring suggests the following parameters:

X1 = 10

X2 = 15

X3 = 20

X4 = 30

AVG1 = 10

AVG2 = 10

AVG3 = 10

AVG4 = 15

W1 = 1

W2 = 2

W3 = 3

W4 = 4

The formula is built into, or can be included in, various technical analysis software packages such as MetaStock^[5] or OmniTrader.

Implications

Entry rules KST Indicator

When KST crosses below its 9-day exponential average, short at the next day opening price.

Exit rules KST indicator

When KST crosses above its 9-day exponential average, close short position at the next day opening.

Variations

It can be calculated on daily^[6] or long term^[7] basis.

The dominant time frame in the (KST)'s construction is a 24-month period, which is half of the 4-year business cycle. This means that the KST will work best when the security in question is experiencing a primary up- and downtrend based on the business cycle.^[4]

KST interpretation

KST can be interpreted in the ways mentioned below.^[6]

The dominant time frame in the Know Sure Thing (KST)'s construction is a 24-month period, which is half of the 4-year business cycle. This means that the Know Sure Thing (KST) will work best when the security in question is experiencing a primary up- and downtrend based on the business cycle.

Directional changes and moving average crossovers

You've discovered how changes in direction are the way the KST triggers signals, but also that moving-average crossovers offer less timely, but more reliable signals. The average to use is a simple 10-day moving average. It is possible to anticipate a moving average crossover if the KST has already turned and the price violates a trendline. The KST started to reverse to the downside before the up trendline was violated. Since either a reversal or a trading range follow a valid trendline violation, it's evident that upside momentum has temporarily dissipated, causing the KST to cross below its moving average.

Traditionally, the MACD gives buy and sell signals when it crosses above and below its exponential moving average, known as the “signal line”. This approach isn't perfect; the ellipses on the chart highlight all the whipsaws. As said earlier, the KST can also give false or misleading signals, as you can see from the April 2005 buy signal. It comes close to a couple of whipsaws, but by and large, it's more accurate, even though the MACD often turns faster than the KST.

과잉 구매/과잉 판매 및 다이버전스

지표가 과매도/과매도 구역 위와 아래로 교차할 때 모멘텀 매수·매도 신호가 촉발된다는 개념이다. 그렇더라도 가격 패턴 완성, 트렌드라인 위반 등 가격에서 어떤 종류의 트렌드 반전 신호를 기다려야 한다.

KST는 종종 가격에 따라 긍정적이고 부정적으로 갈린다.

추세선 위반 및 가격 패턴 보완

한국과학기술원(KST)에 추세선을 구축해 언제 위반됐는지 보는 것도 가능하지만 그리 자주되지는 않는다. 하지만 그럴 때는 대개 강력한 신호가 발생한다.

참고 항목

• 어드바이저샤레스

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