Know Sure Thing (KST) Indicator: Full Guide

Momentum indicators

Know Sure Things
  • The Know Sure Thing indicator, or KST, is a momentum oscillator.
  • It takes into account four time periods (and not a single one as other indicators).
  • It gives traders a bullish or bearish biais.

The Know Sure Thing (KST) indicator that gives bullish and bearish momentum signals. It is an oscillator that is significantly different from the rest of the momentum oscillators. The difference is that it takes into account four time periods as compared to one period that other oscillators consider. Afterward, it combines all four different time periods into a single momentum oscillator. It gives importance to the length of a time period. That means it assigns more weight to longer time periods. The KST indicator makes every time period smooth through a moving average. It is one of the most efficient momentum oscillators that respond more quickly. Its reaction speed depends on its consideration of various time periods at a time. It is a versatile indicator traders can use on all timeframes because of the fact that it can identify both types of trends, short term, and long term. 

Technical analysts and expert traders generally use this indicator to seek divergences, signal line crossovers, and centerline crossovers. The Know Sure Thing indicator makes the best use of trend line signals. Although trend line signals rarely occur in the market whenever they appear, the Know Sure Thing employs them to give accurate buy or sell signals. That is the reason that traders combine trend lines with it to get very accurate signals to buy or sell. Martin Pring developed this fantastic trading tool. He originally named it “Summed Rate of Change” in the article “Stocks and Commodities” in 1992. But the term Know Sure Thing became popular among analysts and traders. He invented this indicator with the purpose of making interpretation of the rate of change’s readings easy for the trader. 

Parameters, Calculations, and formula of the Know Sure Thing indicator 

The default parameters of the Know Sure Thing indicator are the following. 

  • The rate of change settings: 10,15,20,30
  • Moving averages for the above rate of change indicators: 10,10,10,15
  • The signal line moving average: 9

The calculation of the KST is simple as it is a matter of simple addition. It takes the Simple Moving Averages (SMAs) of four periods or rate of change of four different periods, then it weighs them, and adds them. Its formula is: 

Know Sure Thing (KST) = (RATE OF CHANGE MOVING AVERAGE # 1 × 1) + (RATE OF CHANGE MOVING AVERAGE # 2 × 2) + (RATE OF CHANGE MOVING AVERAGE # 3 × 3) + (RATE OF CHANGE MOVING AVERAGE # 4 × 4)

Where:

  • RATE OF CHANGE MOVING AVERAGE (ROC_MA) # 1 is 10-Period Simple Moving Average of 10-Period Rate of Change 
  • RATE OF CHANGE MOVING AVERAGE # 2 is 10-Period Simple Moving Average of 15-Period Rate of Change
  • ROC_MA # 3 is 10-Period Simple Moving Average of 20-Period Rate of Change
  • RATE OF CHANGE MOVING AVERAGE # 4 is 15-Period Simple Moving Average of 30-Period Rate of Change

While 1,2,3, and 4 are the weights to assign to each of the four combinations.

And finally, Know Sure Thing indicator’s signal line computes by considering the 9th period Small Moving Average of the Know Sure Thing value.

What does the Know Sure Thing indicator tell traders?

The Know Sure Thing indicator serves multiple purposes such as it gives bearish and bullish signals. The presence of Know Sure Thing above the signal line means the bullish trend. The presence of the Know Sure Thing indicates the bearish trend in the market. Traders also use it to seek convergences, divergences, overbought and oversold market conditions, signal line crossovers, and centerline crossovers.

However, technical analysts advise combining the Know Sure Thing indicator with other technical analysis tools to gain maximum. Therefore, traders prefer to use this in conjunction with other candlestick patterns, chart patterns, or other non-momentum indicators for better decision making. 

How to use the Know Sure Thing indicator?

The Know Sure Thing continuously oscillates above or below the Zero Line. The reading is positive when the KST is above the Zero Line and it indicates that it is favoring the bulls. The reading is negative when the KST indicator is below the Zero Line and it shows that the momentum is favoring the bears. The positive readings show positive weighted and smooth values of the rate of change and increasing prices of the financial assets. The negative readings illustrate the downtrend with falling prices of the stock. 

The basic centerline and signal line crossovers are the strongest signals provided by the Know Sure Thing indicator. Traders can really capitalize on this strength. They should search for signal line crossover after witnessing the basic centerline crossover. They should also detect the general direction of the trend as well. As a general rule, the KST ascends when it is above the signal line and it descends when below the signal line. An ascending and negative Know Sure Thing line indicates the weakening of the downside momentum. A descending and positive Know Sure Thing line shows the waning upside momentum.

Moreover, bullish and bearish divergence signals are also possible but they cannot be used every time. The chartists are advised to be selective before using them. They are also encouraged to experiment with different settings because one size may not fulfill the requirements of the traders. They can also experiment with moving average settings and try mixing and matching the rate of change settings to maximize their odds of success. 

The pros and cons of the Know Sure Thing indicator

Pros

The KST indicator was invented to make interpretation of the rate of change’s readings easy for the trader. It has several other advantages that make it one of the most efficient indicators among the technical analysis tools. 

  • Its response rate is comparatively higher than any other momentum oscillator 
  • It is a versatile indicator that can be used on all timeframes ranging from short term to long term
  • It serves multiple purposes such as to seek divergences, signal line crossovers, and centerline crossovers.
  • Its basic centerline and signal line crossovers are considered the strongest signals to measure the strength of a trend

Cons

There is no doubt that the Know Sure Thing oscillator is one of the best trading tools, yet it has certain disadvantages as well. 

  • It may give false signals like any other indicator 
  • It requires the assistance of other indicators to confirm the validation of a trend

Conclusion

The Know Sure Thing oscillator is considered among the most reliable and user-friendly momentum oscillators. It captures four different price cycles as it is based on the rate of change of four different time periods. The indicator makes every time period smooth through a moving average.

It is a powerful indicator that has the potential to help you maximize your trading profit. Technical analysts suggest maximizing with different settings to enhance the chances of maximizing gain. However, the default setting of the KST is recommended for novice traders who are at the very beginning of their trading career.

If the price of an asset is decreasing but the Know Sure Thing oscillator is ascending, it is a strong signal of a bullish divergence. If the price of an asset is increasing but the Know Sure Thing indicator is descending, it is a strong signal of bearish divergence.

However, the experts emphasize not to rely on a single indicator. The Know Sure Thing should be used in conjunction with other technical analysis tools to get accurate signals. 

Want to know which markets just printed a pattern?

MarketTimeframePrinted on
PatternsWizard book - Every Candlestick Patterns Statistics

"Every Candlestick Patterns Statistics", the last trading book you'll ever need!

Pre-register now and receive the candlestick patterns statistics ultimate book for free before anyone else!

"All you need is one pattern to make a living."
- Linda Raschke

Awesome move! We are giving the last touch to the "Every Candlestick Patterns Statistics" book. We are very excited to send it to you right when it's ready. Stay tuned 📈