Getting rid of confusion: Mastering the indicator of Know Sure Thing

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Today, this cat takes you into a magical world of technical indicators. Let's talk about the "Know Sure Thing" (KST) indicator, which was created by the genius Martin Pring in 1992. It made its debut in the "Stocks & Commodities Magazine" and was originally called the "Summed Rate of Change". KST is like a fortune teller, observing the rate of change (ROC) over four different periods and using the simple moving average (SMA) to calculate a mysterious value. It dances above and below the zero line, sometimes cheerful and sometimes melancholic.

Listen carefully, this indicator is a bit like alchemy. It requires four mysterious numbers: 10, 15, 20, and 30, which represent the lengths of the ROC. Then, these four numbers are matched with the corresponding SMA lengths of 10, 10, 10, and 15 for a magical smoothing process. Lastly, there is another number, 9, used to calculate the SMA length of the signal line. It's like preparing a complex French dish, with many steps, but the end result is definitely worth it.

We need to mix the SMAs of these four ROCs together, just like an alchemist mixing mysterious potions, to finally obtain the secret formula of KST: (RCMA1 x 1) + (ROCMA2 x 2) + (ROCMA3 x 3) + (ROCM4A x 4). Then, using this secret formula, we create a 9-period SMA as a signal line, which is like drawing the direction on a treasure map.

However, this indicator is not infallible. It's like a wise astrologer who can read the arrangement of the stars but might miss certain celestial phenomena. KST behaves differently in analyzing bull markets and bear markets. In a bull market, KST divergence occurs when the stock price falls while KST keeps rising; in a bear market, it's the opposite, with the stock price rising while KST laments.

The two terms, overbought and oversold, are somewhat complex in the world of KST. They do not have clear boundaries like momentum oscillators such as RSI, and their true meanings need to be discovered through research and experimentation. But that's exactly what makes them fascinating – overbought may indicate a strong bullish market, while oversold may signal increasing bearish power.

When analyzing KST, we encounter two types of crossover points: zero line crossover and signal line crossover. The zero line crossover is like the balance of a scale, always wavering; while the signal line crossover is a precursor to a major storm. When the KST line crosses the signal line, it is like a shift in market power, a sign of an upcoming uptrend or a precursor to a downtrend.

Finally, I would like to remind everyone that although the "Know Sure Thing Indicator" (KST) is full of wisdom, it is not the ultimate answer in the galaxy. It has a lag, like a spaceship traveling through the stars, always taking some time to reach its destination. Therefore, when using it, it is best to combine it with other technical indicators so that you can find your direction in the vast sea of stars. Oh, by the way, I will also share a mysterious code with you all, so that you can personally experience the magical charm of this indicator!

This code is a script for plotting the "Know Sure Thing" indicator. It uses the Pine Script language on the TradingView platform.

First, the indicator() function is used to set some properties of the indicator, such as the title, format, precision, and timeframe.

Then, some input variables are defined. Users can customize the values of these variables on the chart. For example, roclen1 represents ROC length #1, which has a default value of 10, and smalen1 represents SMA length #1, which also has a default value of 10.

Next, a function named smaroc() is defined. This function calculates the simple moving average (SMA) ROC value for a given ROC length and SMA length, and returns the result.

Then, in the main logic, the smaroc() function is called four times to calculate the SMA ROC values for different parameter combinations. These values are then weighted and summed to obtain the KST indicator value (kst).

Finally, use the built-in function ta.sma() to calculate the signal line (sig) of the KST indicator (kst), and plot it on the chart.

The last line of code uses the hline() function to draw a horizontal line representing the zero value.