The KST Trading system is a trend momentum following system. It is a trading strategy that is somehow simple to use and recommended for the Forex beginners. It was submitted in the year 2015 by a trader known as Penny.
This trading system have two versions which come on two different templates; one is the KST with RSI and moving averages while the other is the KST with stochastic and moving averages channel. But the two versions use the KST indicator with the main difference being the use of the resistance strength indicator (RSI) indicator in one version and the use of the stochastic indicator in the other version. Both the RSI and the stochastic indicators are oscillatory indicators and they work pretty the same. So whichever the version/template that you choose to use, the system/strategy functionality is the same.
This trading strategy is designed to work on timeframes of 30 minutes or higher. Also, it gives best returns when used to trade indices, commodities and also Forex.
We are going to discuss the various indictors that are used in this trading system as below.
- KST with stochastic (14,5,3,8)
This indicator is displayed on a separate chart below the main trading chart. It will only appear on the chart when the trader is using the KST with stochastic and moving averages channel template. It generates two lines that oscillate about a zero line. The two lines are black and red. There is also gray and black bars that form between the black line and the zero line.
This indicator is mainly for showing the market swings. It also plays a very big roll is providing trading signals. When the red line gets below the black line while both are below the zero line, then that is an indication of an imminent rise in the market prices. When the black line gets below the red line while both are above the zero line, then that is a sign that there is a possible fall in the market prices.
Fig.1. The KST with stochastic (14,5,3,8) and moving averages channel template.
- KST with RSI (14)
This on the other hand is displayed only when the trader is using the KST with RSI and moving averages template. Mainly, other than the names, the two templates appear to be the same. The KST with RSI is similar to the KST with stochastic (14, 5, 3, 8) and works in the same way.
Fig.2. The KST with RSI and moving averages channel template.
- QTI
This is also displayed on a separate chart. It is responsible for the generation of green, red and gray vertical bars. Trading only takes place when the bars being generated are either red or green. No trading should occur when the bars are gray. When the bars are red there is a down trend and when the bars are green there is an uptrend.
- EMA 50
There are two EMAs of period 50 that are used. One in the upper one that is blue and the other is the lower one that is red.
- Brooky-indicators
This are displayed on the main trading chart and appear as back and red dotted lines.
Rules of using the KST Trading strategy
Before looking for any other signal the trader has to first look at the two EMAs, when the prices/candlesticks are above EMA 50 blue line the trader should only place a buy. But if the prices are below the EMA 50 red line the trader should only place a sell.
- Placing a Buy order
For the trader to place a buy order, the price must be above EMA 50 (blue). Then the KST histogram (the two lines and the bars) have to cross the zero line up. Then the QTI indicator has to generate green bars.
- Placing a Sell order
For the trader to place a sell order, the price must be below EMA 50 (red). Then the KST histogram (the two lines and the bars) have to cross the zero line down. Then the QTI indicator has to generate red bars.
After placing the orders, the trader use a take profit to stop loss ratio of 3:1 or 1:1. The trader may also choose to close the trades himself when an opposite signal is given or when a gray bar is formed.
Fig.3. Opening trades using the KST with stochastic (14,5,3,8) and moving averages channel template.
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