Know Sure Thing (KST)
DEFINITION
A two-line indicator used determine momentum in stock trends. As an oscillator it fluctuates above and below zero, providing trade signals and analytical insight based on divergence with price and KST and signal Line crossovers. The indicator formula utilizes four different time frames to show overall momentum, and not just momentum over one specific timeframe:
ROCMA1 = 10-Period SMA of 10-Period Rate-of-Change
ROCMA2 = 10-Period SMA of 15-Period Rate-of-Change
ROCMA3 = 10-Period SMA of 20-Period Rate-of-Change
ROCMA4 = 15-Period SMA of 30-Period Rate-of-Change
KST Line = (RoCMA1 x 1) + (RoCMA2 x 2) + (RoCMA3 x 3) + (RoCMA4 x 4)
Signal Line = 9-period SMA of KST
Where SMA stands for Simple Moving Average and ROC stands for Rate-of-Change.
EXPLANATION
Know Sure Thing was developed by Martin Pring, a technical analyst and author, to show the overall momentum of a stock, or other financial asset. Traders typically use KST for trade signals or to confirm trends.
Buy signals occur when the KST crosses above the zero line, or when the KST crosses above its signal line. Sell signals occur when the KST crosses below the zero line, or when the KST crosses below the signal line. When the KST stays above zero during an uptrend, it confirms the trend. When KST stays below zero during a downtrend, it confirms the downtrend.
Traders also watch for when the indicator diverges with price. If the price is making new highs, but KST isn't, it indicates price momentum is slowing. If the price is making new lows and KST isn't, it indicates sell pressure is slowing.
While the formulas are different, the applications of KST are similar to that of the MACD.