One of the most preferred momentum oscillators by traders is the Know Sure Thing (KST) indicator. Let’s explore more about the KST indicator to understand it better.
What is the Know Sure Thing Indicator?
The Know Sure Thing (KST) indicator was developed by Martin Pring in 1992. It was originally named as the ‘Summed Rate of Change’ indicator, but the name KST stuck.
The KST is a momentum oscillator that is based on Rate of Change (ROC). The KST is formed by the smoothed rate-of-change for four different timeframes. Its value fluctuates above and below zero. The default setting of the KST indicator is KST (10, 15, 20, 30, 10, 10, 10, 15, 9).
The KST indicator is a two-line indicator. It consists of the KST line and a signal line which is an SMA of the KST line itself. The figure below shows the KST indicator.
Know Sure Thing Indicator and Crosses
The crosses have clear significance for the KST indicator. There are two types of crosses – signal line crosses and zero line crosses. Usually, the zero line crosses are less reliable when compared to signal line crosses, as the signal line crosses signify an underlying change in momentum.
- When KST line crosses above the zero line, it indicates that the prices are moving higher.
- When KST line crosses below the zero line, it indicates that the prices are moving lower.
- When the KST line is negative and it crosses above the signal line, it means that the upside momentum is increasing. This is a bullish sign.
- When the KST line is positive and it crosses below the signal line, it means that the downside momentum is increasing. This is a bearish sign.
Know Sure Thing Indicator and Divergences
An important signal from the KST indicator is the divergences. A divergence is said to happen when price action or movements is not confirmed by the KST indicator. This usually means that a reversal may be imminent, as the momentum is not supporting the price. There are two types of divergences – bullish divergence and bearish divergence.
- Bullish divergence happens when the price form lower lows and the KST oscillator form higher lows. Then the price usually reverses to the upside.
- Bearish divergence happens when the price form higher highs and the KST oscillator forms lower highs. Then the price usually reverses to the downside.
How Traders Use The Know Sure Thing Indicator
Following are the ways in which traders use the KST indicator for making better trades.
- When the zero line cross happens in the upward direction.
- When there is a bullish divergence between price and KST indicator.
- When the KST line is negative and crosses above the signal line.
- When the zero line cross happens in the downward direction.
- When there is a bearish divergence between price and KST indicator.
- When the KST line is positive and crosses below the signal line.
Note that many traders use the KST indicator in combination with other indicators in order to lower the risk of false signals
The figure below shows how to use the KST indicator in trading.
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