Know Sure Thing (KST)

The Know Sure Thing (KST) is a momentum oscillator developed by Martin Pring. It’s specifically designed for identifying price cycles and potential turning points in a market. This technical analysis tool aims to help traders and investors determine the strength and direction of a security’s momentum.

Overview of KST

KST is based on the smoothed rate-of-change for four different time periods. It is calculated by combining the weighted averages of these different time periods. The formula essentially gives more significance to longer-term momentum, which helps in identifying the major trend.

How It Works

The KST indicator takes multiple rates of change (ROC) at different time frames and smooths them with moving averages. These smoothed values are then weighted and summed up to generate a single oscillator. This allows it to capture both the short-term and long-term cycles of momentum.

KST Formula

The KST can be computed using the following steps:

  1. Calculate the Rate of Change (ROC) for multiple time periods.

    • ROC1 = (Current Price / Price N1 periods ago) - 1
    • ROC2 = (Current Price / Price N2 periods ago) - 1
    • ROC3 = (Current Price / Price N3 periods ago) - 1
    • ROC4 = (Current Price / Price N4 periods ago) - 1

  2. Smooth each ROC with a moving average (usually a simple moving average (SMA)).

    • SMA1 = SMA(ROC1, Period1)
    • SMA2 = SMA(ROC2, Period2)
    • SMA3 = SMA(ROC3, Period3)
    • SMA4 = SMA(ROC4, Period4)

  3. Assign weights to each smoothed ROC.

  4. Combine the weighted SMAs to generate the KST value.

By summing these weighted and smoothed rates of change, the indicator becomes more robust and less susceptible to market noise.

Interpretation

Interpreting the KST is similar to other momentum oscillators. It swings above and below a centerline (usually zero), providing insight into the strength and direction of momentum.

Advantages and Disadvantages

Advantages

Disadvantages

Real-world Applications

KST can be applied in various scenarios of trading and investing:

  1. Stock Trading: Particularly useful for long-term stock traders to identify multi-month uptrends or downtrends.
  2. Forex Trading: Helps in identifying longer-term currency trends without getting caught in short-term noise.
  3. Commodity Trading: Useful in commodity markets, which can have cyclical price movements.

Tools and Platforms Supporting KST

Several trading platforms and software tools support the KST indicator. Some of the most notable include:

Notable Traders Using KST

Though specific traders who exclusively use KST may not have widespread recognition, Martin Pring, its developer, has a well-established reputation in the financial community. His work on market cycles and technical analysis has influenced many traders.

Practical Example

Imagine you’re analyzing the stock of Apple Inc. (AAPL). You’ve decided to use the 10-day, 15-day, 20-day, and 30-day ROC values. Calculate the SMAs for these ROCs and assign weights as follows:

You would then sum the weighted SMAs to generate the KST. If the KST crosses above zero, it would be a potential buy signal. Conversely, a cross below zero would indicate a possible sell signal.

Resources for Further Study

For those interested in deeper learning, Martin Pring has several resources available:

Conclusion

The Know Sure Thing (KST) is a versatile momentum oscillator that can help traders identify the strength and direction of price momentum. By incorporating multiple timeframes and smoothing factors, it provides a comprehensive view that minimizes short-term market noise. While it has its complexities and limitations, when used correctly, it can be a valuable tool in a trader’s arsenal.