Understanding Know Sure Thing (KST)

Know Sure Thing (KST) is a momentum-based technical indicator developed by Martin Pring to identify market trends and potential reversals. KST combines multiple rate-of-change (ROC) calculations and their corresponding moving averages to provide a comprehensive view of market momentum.

What is KST?

KST is designed to capture the overall momentum of a security by analyzing its price changes over different periods. It combines several ROC calculations, each weighted and smoothed by different moving averages, to provide a more nuanced view of market strength and direction.

How is KST Calculated?

The KST calculation involves several parameters and steps:

1. Rate of Change (ROC) Calculations:

   • Calculate ROC for four different periods: lightest, light, heavy, and heaviest.

2. Moving Averages:

   • Apply moving averages to each ROC to smooth out the data and highlight the trend.

3. Weighted Components:

   • Combine the smoothed ROC values, applying specific weights to reflect their importance.

4. KST Formula:

   The general formula for KST involves summing the weighted and smoothed ROC values:

   KST = (W1 * SMA1) + (W2 * SMA2) + (W3 * SMA3) + (W4 * SMA4)

   Where:

   • W1, W2, W3, W4 are the weights for each ROC component.
   • SMA1, SMA2, SMA3, SMA4 are the smoothed values of the ROC components.

Formula

Here’s a concise formula representation for KST:

KST = (W1 * SMA(lightest_roc)) + (W2 * SMA(light_roc)) + (W3 * SMA(heavy_roc)) + (W4 * SMA(heaviest_roc))

Uses of the KST Indicator

KST is used for:

1. Trend Identification

• Positive KST: Indicates upward momentum and a potential uptrend.
• Negative KST: Indicates downward momentum and a potential downtrend.

2. Reversal Signals

• Crossovers: When the KST line crosses the signal line, it can signal potential trend reversals.

3. Momentum Analysis

• Divergences: Divergences between KST and price can indicate potential reversals or trend confirmations.

Parameters

Here are the key parameters for configuring the KST indicator:

• Data Offset (pod):

  • Default Value: 1
  • Min Value: 1
  • Max Value: 300
  • Description: Defines the number of periods used for calculating KST. A value of 1 compares the current price with the price from the previous period.

• Data Type (data):

  • Default Value: c (close)
  • Options: c (close), o (open), h (high), l (low), v (volume)
  • Description: Specifies the data used for calculating KST.

• Lightest Moving Average Period (lightest_sma):

  • Default Value: 10
  • Min Value: 1
  • Max Value: 300
  • Description: The period for the lightest moving average applied to the ROC.

• Light Moving Average Period (light_sma):

  • Default Value: 15
  • Min Value: 1
  • Max Value: 300
  • Description: The period for the light moving average applied to the ROC.

• Heavy Moving Average Period (heavy_sma):

  • Default Value: 20
  • Min Value: 1
  • Max Value: 300
  • Description: The period for the heavy moving average applied to the ROC.

• Heaviest Moving Average Period (heaviest_sma):

  • Default Value: 30
  • Min Value: 1
  • Max Value: 300
  • Description: The period for the heaviest moving average applied to the ROC.

• Lightest Rate of Change Period (lightest_roc):

  • Default Value: 10
  • Min Value: 1
  • Max Value: 300
  • Description: The period for the lightest ROC calculation.

• Light Rate of Change Period (light_roc):

  • Default Value: 10
  • Min Value: 1
  • Max Value: 300
  • Description: The period for the light ROC calculation.

• Heavy Rate of Change Period (heavy_roc):

  • Default Value: 10
  • Min Value: 1
  • Max Value: 300
  • Description: The period for the heavy ROC calculation.

• Heaviest Rate of Change Period (heaviest_roc):

  • Default Value: 15
  • Min Value: 1
  • Max Value: 300
  • Description: The period for the heaviest ROC calculation.

• Moving Average Type (ma):

  • Default Value: sma (simple)
  • Options: sma, ema, wma, tema, trima, dema, hma, mama, vma, kama, vidya
  • Description: Specifies the type of moving average applied to the ROC.

• Signal Period (signal_period):

  • Default Value: 9
  • Min Value: 1
  • Max Value: 300
  • Description: The period for the signal line used to generate buy/sell signals.

• Line to Pass (line):

  • Default Value: 1 (KST)
  • Options: 1 (KST), 2 (Signal Line)
  • Description: Specifies which line to display.

Advantages of KST

• Comprehensive Analysis: Combines multiple ROC calculations for a detailed view of momentum.
• Trend and Reversal Signals: Provides clear signals for trend changes and potential reversals.

Limitations of KST

• Complex Calculation: May be more complex to calculate and interpret compared to simpler indicators.
• Lagging Indicator: Like other momentum indicators, KST can lag behind price movements.

Conclusion

The Know Sure Thing (KST) indicator is a versatile tool for traders seeking to understand market momentum and identify potential trend changes. By leveraging its multi-period ROC calculations and smoothing techniques, KST offers a comprehensive perspective on market strength and direction. Explore KST on Tradeorca to enhance your trading strategies and gain a deeper insight into market dynamics.