Know Sure Thing (KST) Momentum Indicator Part 2

The rate of change (ROC) concept such as Know Sure Thing indicator (KST) works extremely well because vast majority of markets are sensitive to the business cycle.

There are really three levels of signaling. The first occurs when the indicator itself changes direction, the second when it crosses its Moving Average (MA), and the third when the Moving Average (MA) also reverses direction. In most cases, the Moving Average (MA) crossover offers the best combination of timely signals with a minimum of whipsaws.

Changes in the direction of the 9-month Moving Average (MA) offer the most reliable signals, but these usually develop well after the turning point. The most timely and reliable signals thereby develop in those situations where the Moving Average (MA) reverses close to a turning point.

For the most part, the indicator has been very reliable, but like any other technical approach, it is by no means a perfect technique. The vast majority of markets are sensitive to the business cycle, and so the summed Rate of change (ROC) concept works extremely well. It is for this reason that call this indicator the Know Sure Thing (KST), which stands for know sure thing. Most of the time the indicator is reliable, but you know that it's not a sure thing.