This indicator was developed by Martin J. Pring, its purpose is to measure the momentum of a stock, namely the speed of movement of prices, taking into account different time frames.
The KST summarises the price performance of a share in a single indicator by measuring it over different periods and condensing these measures, which are appropriately weighed, into a single instrument.
Its construction is based on four ROCs calculated on different time frames. Each ROC is then filtered from outliers by a moving average. The four indicators thus obtained, suitably weighed according to the time frame and are combined into a single final indicator.
The process of selecting weights is an important part of the construction of this indicator since the final objective is to obtain an indicator in which the longer time frames are dominant and therefore allow the identification of the most important price movements. Shorter time frames allow the indicator to respond with greater sensitivity and timeliness to price changes.
This provides a good compromise between timeliness and sensitivity; for example, false signals are reduced to a minimum, while valid signals are relatively timely.
This indicator can then be associated with an exponential moving average that acts as a trigger line to highlight the operational signals.
The formula developed by Martin Pring with its default values is as follows:
SMA( 10 ) of ( ROC( Close, 10, % ) * 1 )
SMA( 10 ) of ( ROC( Close, 15, % ) * 2 )
SMA( 10 ) of ( ROC( Close, 20, % ) * 3 )
SMA( 15 ) of ( ROC( Close, 30, % ) * 4 )
Its trigger is an EMA( 8 )
These values, relative to the short-term KST, are those proposed in the case of a daily time frame and obviously they must be adapted in the case of different time frames, in particular in the case of intraday charts.
Once this indicator is selected from the list of available instruments, you can then change the calculation period for each ROC, the period of the moving average filter for each ROC, as well as the period and type of the moving average trigger.
It should be noted that the effect of a signal depends very closely on the pattern of the long-term trend. In most situations, it can be seen that a short-term signal, in accordance with the main trend (defined by the long-term KST), makes it possible to identify more interesting amplitude movements.
The formula developed by Martin Pring for the long-term KST, with its default values, is as follows:
SMA( 15 ) of ( ROC( Close, 30, %) * 1 )
SMA( 20 ) of ( ROC( Close, 45, %) * 2 )
SMA( 30 ) of ( ROC( Close, 60, %) * 3 )
SMA( 45 ) of ( ROC( Close, 90, %) * 4 )
Its trigger is an EMA( 26 )
These values, similarly to the short-term KST values, are the ones proposed in the case of a daily time frame and obviously they must be adapted in the case of different time frames particularly in the case of intraday charts.
In order to facilitate the joint use of short and long term indicators, a model has been prepared called "Format with Kst", which displays the two indicators calculated with default values.
When the KST is moving above the trigger line it is seen as positive or could begin a bullish move. When the KST moving below the trigger line it is seen as negative or could be beginning a bearish move.
