Kairi Relative Index (KRI): Definition, Calculation, and Examples

Learn about the Kairi Relative Index (KRI), a technical analysis indicator used to identify potential buy and sell points by assessing overbought and oversold conditions. Understand its definition, calculation, historical context, and practical application.

The Kairi Relative Index (KRI) is a technical analysis indicator used to identify potential buy and sell points in financial markets. It operates by measuring the deviation of an asset’s current price from its moving average, indicating overbought or oversold conditions.

Calculation of Kairi Relative Index

The Kairi Relative Index is calculated as follows:

$$ KRI = \frac{(Current\: Price - Moving\: Average)}{Moving\: Average} \times 100 $$

Types of Moving Averages

• Simple Moving Average (SMA): A straightforward average of prices over a specified period.
• Exponential Moving Average (EMA): Assigns more weight to recent prices, providing a more responsive measure.

Historical Context of Kairi Relative Index

The Kairi Relative Index originated in Japan and has since become a part of global technical analysis practices. Historically, traders have used KRI to gauge market sentiment and forecast potential price reversals.

Practical Application of KRI

Identifying Overbought and Oversold Conditions

• Overbought Condition: When the KRI value is positive and significantly high, it indicates that the asset may be overbought and could be due for a price correction.
• Oversold Condition: When the KRI value is negative and significantly low, it indicates that the asset may be oversold and could be due for a price increase.

Example Calculation

Consider an asset with a current price of $150 and a 20-day SMA of $140:

$$ KRI = \frac{(150 - 140)}{140} \times 100 \approx 7.14\% $$

This positive KRI suggests the asset may be overbought.

Special Considerations

Traders should use KRI in conjunction with other indicators and analysis methods to validate signals and avoid false predictions. Market conditions, volume trends, and broader economic factors also play critical roles in accurate analysis.

Comparisons with Related Indicators

• Relative Strength Index (RSI): Measures price momentum but on a scale from 0 to 100.
• Moving Average Convergence Divergence (MACD): Uses the difference between two EMAs to identify trend changes.

FAQs

How often should the KRI be calculated?

The frequency depends on the trader’s strategy, typically on daily, weekly, or even intraday timeframes.

Can the KRI be used alone for trading decisions?

While KRI provides insights into market conditions, it should be used in combination with other tools and indicators for robust analysis.

Is KRI applicable to all asset classes?

Yes, KRI can be applied to various asset classes, including stocks, currencies, and commodities.

References

1. Murphy, J. J. (1999). Technical Analysis of the Financial Markets. New York Institute of Finance.
2. Pring, M. J. (2002). Technical Analysis Explained. McGraw-Hill Education.

Summary

The Kairi Relative Index (KRI) is a valuable tool in technical analysis, helping traders identify potential buy and sell points by assessing overbought and oversold market conditions. Proper understanding and application of the KRI, alongside other indicators, can enhance trading strategies and market insights.