What is the Know Sure Thing (KST)?
The Know Sure Thing (KST) is a momentum oscillator developed by Martin Pring to simplify the interpretation of rate-of-change readings for traders.
Key Takeaways
- The Know Sure Thing (KST) is a momentum oscillator designed to assist traders in interpreting rate-of-change price data.
- Trading signals are generated when the KST crosses over the signal line, but traders also look for overbought or oversold conditions.
- Traders often combine the KST with other technical analysis methods to increase their chances of making successful trades.
Calculating the Know Sure Thing (KST)
The KST is calculated by taking the simple moving average (SMA) of four different rate-of-change (ROC) periods, adding them together to derive the KST, and creating a signal line by taking the 9-period SMA of the KST.
The calculation for KST is as follows:
$$
KST = ( RCMA #1 × 1 ) + ( RCMA #2 × 2 ) + ( RCMA #3 × 3 ) + ( RCMA #4 × 4 ) \
\textbf{where:}
RCMA #1 = 10-period SMA of 10-period ROC\
RCMA #2 = 10-period SMA of 15-period ROC\
RCMA #3 = 10-period SMA of 20-period ROC\
RCMA #4 = 15-period SMA of 30-period ROC
$$
Finally, the signal line is calculated by taking the 9-period SMA of the KST value.
Understanding the Know Sure Thing (KST)
The KST indicator can be utilized similarly to other momentum oscillators such as the well-known relative strength index (RSI). Trading signals are generated when the KST crosses over the signal line. However, traders may also look for convergence and divergence with the price, overbought or oversold conditions, or crossovers of the centerline.
Many traders combine the KST indicator with other forms of technical analysis to maximize their chances of success. For instance, traders may look at other non-momentum indicators, chart patterns, or candlestick patterns to assist in their decision-making process.
Example of the Know Sure Thing (KST)
Let’s explore an example chart:
In the example above, the KST indicator reached highly overbought conditions in early February and eventually experienced a crossover, generating a well-timed sell signal. The indicator also crossed over in late February, mid-March, and mid-April with limited success. The key is to look for both overbought or oversold conditions, as well as a crossover, to signal the trade.
Traders might also use additional technical analysis methods to improve their chances of making successful trades. For example, traders observing the above chart may consider the significant bearish volume on the day of the signal or the candlestick patterns that led up to the trading signal when making their decision. These additional insights can help avoid less profitable trades suggested by the KST indicator.
Related Terms: simple moving average, rate of change, signal line, relative strength index.
References
- Stocks and Commodities. “Summed Rate Of Change (KST)”.
