The Know Sure Thing (or KST for short) binary options indicator is a new type of oscillator. Its primary purpose is to assess the strength of price momentum based on the smoothed rate of price change across four different timeframes. This indicator can generate several types of trading signals, but not all of them are suitable for binary options trading. In this review, we'll discuss how to most effectively use this tool.
Content:
- Characteristics
- Installation
- Overview and settings
- Trading rules for KST
- Opening a Call Option
- Opening a Put Option
- Conclusion
Characteristics of the KST Binary Options Indicator
- Terminal: MetaTrader 4
- Timeframe: M5
- Expiration: 3 candles
- Option Types: Call/Put
- Indicators:
- Trading instruments: currency pairs, commodities, cryptocurrencies, stocks
- Trading hours: 8:00-20:00 (GMT+2)
- Recommended brokers: Quotex, Pocket Option, Alpari, Binarium
Installing the KST Binary Options Indicator
The KST indicator is installed in the MetaTrader 4 platform using the standard installation method. To do this, add it to the terminal's root folder by selecting "File" in MetaTrader 4 and then "Open Data Folder." In the folder that opens, navigate to the "MQL4" folder, then "Indicators," and move all files there. Templates are installed in a similar manner, but placed in the "templates" folder. For more detailed installation instructions, watch our video:
KST Binary Options Indicator Review and Settings
The KST indicator was developed by renowned trader and technical analyst Martin Pring. Many traders are likely familiar with his classic works, including "Technical Analysis Explained," "Indicator Analysis," and "How to Invest with Technical Analysis." The main idea Pring conveys to his readers is that technical analysis is a tool for assessing market cycles and crowd psychology.
By combining trend, momentum, and macroeconomic analysis, he created a trading method that has remained popular for many years. One element of his comprehensive approach to studying financial markets was the Know Sure Thing indicator. This tool is widely used in various trading strategies to identify short- and long-term trend reversals.
What is this indicator? At first glance, KST appears to be a standard momentum oscillator. However, unlike similar tools, Know Sure Thing combines four smoothed moving averages of rate of change (ROC) indicators with different time parameters.
As a result, traders gain the ability to quickly assess the direction and speed of price change across four timeframes simultaneously, providing a comprehensive approach to determining the strength and direction of a trend while filtering out unnecessary market noise.
The KST indicator generates three types of signals:
- The main signal is when crossing the signal line;
- Confirmation of the trend – when crossing the zero mark;
- Divergence.
Let's look at each of them in more detail.
Crossing the Signal Line
Like most oscillators, the Know Sure Thing indicator has its own signal line, which is calculated as a moving average of its values. A buy signal for call options occurs when the KST line crosses upward, indicating strengthening upward momentum. Similarly, for put options, a top-down crossover of the KST line signals weakening momentum and indicates an opportune time to enter short positions if you're trading Forex.
Crossing the Zero Mark
The indicator's zero line serves as a key boundary between bullish and bearish sentiment in the market. Crossing it confirms a trend in a certain direction. If the KST line rises above zero, it indicates buyer dominance and a favorable moment to open call options. When the line falls below zero, sellers take the initiative.
Divergence
A divergence signal occurs when the asset price and the KST indicator move in opposite directions. A bullish divergence occurs when the asset price forms a new, lower low, while the KST line forms a higher low.
A bearish divergence, on the other hand, occurs when the asset price forms a new, higher high, while the KST indicator forms a lower high. Both examples are shown in the image above: the bullish divergence on the left and the bearish divergence on the right.
The Know Sure Thing indicator has many parameters, but there are only a few main ones.
First, it's worth paying attention to the calculation periods of the built-in ROC indicator. These four periods determine the speed of KST's response to market changes. Based on our tests on the M5 timeframe for the USDJPY currency pair, we recommend the settings shown in the image above. However, keep in mind that these parameters should be tailored individually to your asset and timeframe. It's recommended to leave the price type and moving average method used in the calculations unchanged.
If you'd like to gain a deeper understanding of the principles of creating trading strategies and the basics of stock trading, we recommend checking out this selection of books on this topic:
- Trading for Dummies: What Should a Beginning Investor Read?
- Forex Trading Books
- "The Stock Exchange at Your Fingertips" by Viktor Ilyin and Valery Titov
- Trading with Dr. Elder's book, "The Encyclopedia of Stock Trading"
- Alexander Elder, "How to Play and Win on the Stock Exchange"
- The book "Games That Business Sharks Play"
- "Trading - Your Path to Financial Freedom" - a book for traders
Trading Rules for the KST Binary Options Indicator
We'll trade using the KST indicator based on the first type of signals — the signal line crossover. To do this, wait for a blue dot to appear below the candlestick for buying Call options, and a red dot above the candlestick for buying Put options. These visual elements help traders easily identify the candlestick on the chart where the KST line crosses its signal line.
Opening a Call Option
- Wait for the KST line to cross your signal line from bottom to top.
- A blue dot appeared under the candle.
- At the opening of a new interval, we buy a Call option.
Opening a Put Option
- Wait for the KST line to cross your signal line from top to bottom.
- A red dot appeared above the candle.
- At the opening of a new interval, we buy a Put option.
We recommend setting the expiration time to three candles. However, the optimal holding period depends on the specific asset and should be determined by you based on historical data testing results. This approach will help tailor the strategy to the specifics of the chosen instrument and improve its effectiveness.
Specifics of Using the KST Indicator for Binary Options
To enhance the effectiveness of the KST indicator, its author, Martin Pring, recommended using signals not in isolation, but in combination with trend lines and candlestick patterns. Based on experience with this tool, it demonstrates best results on longer timeframes, as it was originally developed to track medium- and long-term cycles in financial markets.
Advantages of the KST Indicator
The undeniable advantages of this oscillator include a more comprehensive and multidimensional market analysis thanks to its formula using price change rates across four timeframes simultaneously. This allows KST to effectively filter out short-term market noise and provide clearer signals of trend reversals.
Disadvantages of the KST Indicator
KST's drawbacks include some signal lag due to the extensive smoothing involved in its calculation. As a result, a significant portion of the price movement may already have occurred by the time a trading signal is generated. In flat conditions, the indicator can generate numerous false signals.
Conclusion
The Know Sure Thing (abbreviated KST) binary options indicator is a fairly powerful tool for identifying trend directions and reversals. However, due to the complexity of its calculations and the large number of settings, it is not recommended for beginners. This tool is best used in conjunction with graphical analysis and Japanese candlestick patterns.
Before using KST to trade binary options with real funds, be sure to practice on a demo account with a reliable broker. Understand how the indicator works and strictly adhere to all rules, keeping risk and capital management in mind. Happy trading!
Download the KST Binary Options Indicator
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