What it means
Momentum describes how quickly a price is rising or falling over a period of time. A single measure can give false signals, because it reflects only one time frame.
The KST tackles this by blending short, medium and longer-term momentum so that the result is smoother and less jumpy. The building block is the rate of change, which compares today's price with the price some number of periods ago.
Pring's usual set-up takes four rate-of-change readings, over 10, 15, 20 and 30 periods, and smooths each with a simple moving average. The smoothed numbers are then weighted so that the longer time spans count for more.
The standard weights are 1, 2, 3 and 4, so the slowest measure has four times the influence of the fastest. Adding the four weighted pieces gives the KST line.
A further 9-period moving average of the KST acts as a signal line. Traders read the indicator in a few simple ways.
When the KST crosses above its signal line, momentum is improving and the crossing is read as a buy signal, and when it crosses below the line, it is read as a sell signal. A move through the zero line suggests the overall trend has changed from negative to positive or the reverse.
As with any technical tool, the KST does not predict the future and can produce false signals, especially when markets move sideways. It is best used with other evidence such as trading volume, support and resistance levels, and fundamental analysis of the company.
The settings can be adjusted, so users should test them rather than assume that the default is best for every market. For a non-specialist, the point is that the KST is an example of how analysts turn a price series into a signal.
Understanding the idea makes it easier to follow research notes that cite crossovers or momentum readings. It also shows why different charting packages can show slightly different lines.
In practice
Real-world examples.
Example
A swing trader watches a share that has been drifting sideways. The KST crosses above its signal line while still below zero, and she takes this as an early hint that selling pressure is fading. She waits for a move above zero before adding to her position.
Example
A portfolio manager uses the KST on a broad market index to check the trend. When the line turns down while the index is still near its high, he reduces risk. The warning proves useful when the market falls the next month.
Example
A research analyst compares the KST on two competing companies. One shows steady positive momentum across all time frames, and the other is flat. She notes the difference in her report on relative strength.
Formula
Calculation
Rate of change (ROC) = (price now / price n periods ago - 1) x 100. KST = (RCMA1 x 1) + (RCMA2 x 2) + (RCMA3 x 3) + (RCMA4 x 4), where each RCMA is a moving average of a rate of change. The standard set-up uses ROC lengths of 10, 15, 20 and 30 periods, smoothed over 10, 10, 10 and 15 periods.
Suppose a share price is $50 now and was $48 ten periods ago, so ROC(10) = (50 / 48 - 1) x 100 = 4.17% before smoothing. Now suppose the four smoothed values are RCMA1 = 2.0, RCMA2 = 1.5, RCMA3 = 1.0 and RCMA4 = 0.5. Then KST = (2.0 x 1) + (1.5 x 2) + (1.0 x 3) + (0.5 x 4) = 2.0 + 3.0 + 3.0 + 2.0 = 10.0. If the 9-period signal line is 8.5, the KST is above its signal line, which would be read as improving momentum.Case study
Seen in the real world.
Quill Harbour Capital is an illustrative, fictional firm whose analyst tested the KST on an index fund over several years. She recorded each time the line crossed above its signal line and compared the following three months with a simple buy and hold approach.
The signals worked in strongly trending periods but produced several false alarms when the index moved sideways. After adding a rule to act only when the KST also moved above zero, the number of false signals fell by about a third.
The illustrative lesson was that the indicator was most useful as a filter, not as a trigger on its own. The firm now uses it alongside volume and valuation checks and reviews its settings once a year.
Watch out
Common mistakes.
- Treating every crossover as a reliable trade signal, when sideways markets often generate false ones.
- Using the default settings for every market without testing, even though different assets move at different speeds.
- Relying on the KST alone, when it works best alongside volume, trend lines and fundamental analysis.
Questions
People also ask.
Who created the KST?
It was developed by the technical analyst Martin Pring, who designed it to combine momentum over several time spans.
Why does the KST use weights of 1, 2, 3 and 4?
The longer time frames carry more weight so that the line follows the main trend more closely and is less affected by short-term noise.
How is the signal line calculated?
It is normally a 9-period simple moving average of the KST line, and crossovers between the two are used to time signals.
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