### KST Indicator

**KST (The Know Sure Thing) Indicator**

This indicator was first introduced in the early 1990s. It uses four rate of change values to determine the trend of the market.

The formula is as follows:

ROC1 = (1-Price/Price(X1))*100;

ROC2 = (1-Price/Price(X2))*100;

ROC3 = (1-Price/Price(X3))*100;

ROC4 = (1-Price/Price(X4))*100;

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

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 trend, Martin J Pring suggest 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

Let’s look at an example for this indicator. I have chosen Lu Zhou Biochem as a case study.

Entry rules:

1. When KST crosses below its 8 day exponential average, short at the next day opening price

Exit rules:

1. When KST crosses above its 8 day exponential average, close short position at the next day opening price

These simple rules gave rise to the following trades:

Out of 10 trades, 7 were profitable.

For more information regarding the KST indicator, you can refer to the book by

Martin Pring – Technical Analysis Explained.

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