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The KST System


If you’re driving a car in a strange city and need to get directions, it’s easy to stop at a gas station and buy a map. Wouldn’t it be great if you could also buy an investment map pinpointing the market’s proximity to major tops and bottoms? Well, you can! The KST Market Cycle Model, a new analytical approach, can help you just like a map. Developed by Martin J. Pring, author of the widely acclaimed Technical Analysis Explained and editor of the Intermarket Review, the KST Market Cycle Model is used by many technical experts. Of course, no system is perfect, but the KST approach has been proven dependable to help put the odds in your favor. How does the KST System fit into the bull and bear cycle?



 Figure 1: The Four-Year Business Cycle


 These last anywhere from three weeks to many months and retrace between one-third to two-thirds of the previous primary movement. Secondary corrections usually develop because of a temporary change in the perceptions of investors towards the economic or financial outlook.

In turn, intermediate trends are interrupted by even smaller ones lasting from a few days to as long as three weeks. These short-term price movements (the dashed line) are usually caused by random reactions which have little or no bearing on the business cycle.

From an investment point of view, the best time to buy is when all three trends are bottoming. Conversely, the most risky point occurs when the news is good and confidence is highest.

The KST Market Cycle Model consists of three oscillators which reflect the primary, intermediate- and short-term time frames, shown in Chart 1. These are no ordinary oscillators, but have been specially constructed to take into account the fact that price trends are influenced by the simultaneous operation of many different time cycles. Moving average crossovers by the KST indicators generate timely signals of short-, intermediate- and long-term trend reversals, but keep whipsaws, or false signals, to a minimum.

The direction of the Long-term KST tells us whether the primary trend is up or down and the degree of its maturity. Maximum profit opportunities occur when the Long-term KST reverses to the upside from below zero.


The Market Cycle Model for the Swiss Franc



The most important thing to bear in mind is the direction and maturity of the primary trend. Short- and intermediate signals which are triggered in the same direction as the main trend result in the strongest rallies. Signals which go against the main trend generally give false indications.

The KST Market Cycle Model can be constructed for any financial market influenced by the business cycle and also is a very effective tool for relative strength analysis. It is utilized as an analysis tool in each edition of our Intermarket Review, Weekly E-mail and FAX services. The Intermarket Review analyzes the long-term, technical trends of the world’s principal financial markets (equities, debt, currencies, precious metals and commodity indexes), with special emphasis on US markets.

  Excerpted from "Understanding the KST and Asset Allocation

Don't forget to check out the glossary - it has over 300 technical terms! 

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