Advantages and disadvantages of the KST indicator
KST belongs to the group of technical analysis indicators. It was developed by trader Martin J. Pring, the author of the Price Action theory. The tool is based on the RoC indicator, which helps to determine the rate of change in a particular price over a given period. The indicator can be used to analyze trends in the market and track trade signals. However, RoC, like most oscillators of this group, is characterized by the presence of noise, which reduces the accuracy of the analysis. When developing his own indicator, Pring has reduced their influence and strengthened the advantages of RoC, so KST allows you to:
– track trends in both the short and long term;
– reduce noise by using moving averages;
– account for growth in each indicator when calculating.
KST is calculated using a weighted average formula, where each RoC indicator is given its own weight. The longer the calculation period, the more weight is assigned to the indicator. This approach makes KST a classic oscillator. However, in this case, the moving average is added to the calculation, which serves as a signal line designed to soften the critical set of values.To set up the indicator, you need to enter 13 parameters, including the price at which the analysis is carried out, the periods for the RoC and EMA indicators, and the weights for the RoC. In this case, it is essential to choose the correct periods for RoC. In addition, the longer the period for EMA, the less influence of noise. The scales also exert pressure on the period of trends: short-term or long-term.
An increase in the baseline or signal line indicates an upward trend in the market. A decrease in the main line indicates a downtrend. If the main line does not reach the signal height, it is possible to talk about the growth of asset prices. Otherwise, the quotes decrease. And such a chart is possible both under the influence of a trend and during a correction.
Determining the market phase depends on the position of the main line. If the line is above the crossover, the trend is upward. If below, it is downward.
You can buy the asset when the main line crosses the signal line from bottom to top. A connection from top to bottom signals a sale. A crossover with the main line in a top-down position indicates an entry into a short position. If the opposite is true, an entry into a long position. Graphic patterns can form on the KST, such as a breakout, bottom, or resistance level. However, their use depends on the trader and his analysis approach.
Despite several advantages of the indicator, it also has disadvantages. One of them, traders name the delay in signal appearance caused by using moving averages. In addition, KST can hardly be called a universal and convenient tool.