Sunday, March 2, 2008

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.


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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