Key Takeaways
- Measures percentage deviation from simple moving average.
- Positive values indicate overbought; negative indicate oversold.
- Helps identify mean reversion opportunities in price.
- Best used with other indicators for confirmation.
What is Kairi Relative Index?
The Kairi Relative Index (KRI) is a technical analysis oscillator originating from Japan that measures the percentage deviation of an asset's current closing price from its simple moving average (SMA) over a set period, usually 10 to 20 days. This indicator helps identify overbought or oversold conditions by showing how far prices have diverged from their average, making it useful for traders monitoring momentum and mean reversion.
Unlike other oscillators such as the MACD, the KRI focuses specifically on the relative gap between price and SMA, oscillating around zero to indicate potential entry or exit points.
Key Characteristics
The Kairi Relative Index is defined by several distinct features that make it valuable for technical traders:
- Percentage-based deviation: Calculates the difference between the current closing price and the SMA as a percentage, providing intuitive insight into price extremes.
- Oscillator around zero: Positive values indicate prices above the SMA (potential overbought), and negative values indicate prices below the SMA (potential oversold).
- Typical period setting: Commonly uses a 13-day SMA, but this can be adjusted to fit different asset volatilities or trading styles.
- Mean reversion focus: Signals are based on the assumption prices will revert toward the SMA after extreme deviations.
- Complementary indicator: Best used alongside other tools such as data smoothing techniques or trend analysis for confirmation.
How It Works
The KRI is calculated by subtracting the SMA of the asset from its current closing price, then dividing by the SMA and multiplying by 100 to express it as a percentage. This formula reveals how far the price has moved relative to its recent average, highlighting momentum strength or weakness.
Traders interpret a high positive KRI value as a sign that the asset may be overbought and due for a correction, while a low negative value suggests oversold conditions and a potential rebound. Unlike fixed-bound oscillators, the KRI's thresholds vary depending on asset volatility and market context, requiring users to adjust their strategies accordingly.
Examples and Use Cases
Using the Kairi Relative Index can offer actionable insights across various asset classes and market conditions:
- Equities: For example, the ETFs SPY and IVV often exhibit clear KRI signals due to their liquidity and steady trends, helping you time entries and exits.
- Dividend-focused stocks: The VYM ETF can benefit from KRI analysis during range-bound markets where mean reversion plays a strong role.
- Momentum trading: Traders may combine KRI with momentum indicators like the K Percent Rule to refine timing and reduce false signals.
Important Considerations
While the Kairi Relative Index can be a powerful tool, it is essential to recognize its limitations. The indicator tends to lag in strong trending markets where prices can remain overbought or oversold for extended periods, so relying solely on KRI may result in premature trades.
Integrating KRI with other methods such as regression analysis or volume indicators can enhance decision-making. Always consider market context and avoid treating the KRI as a standalone signal for your investments.
Final Words
The Kairi Relative Index highlights when prices stray significantly from their moving average, signaling potential overbought or oversold conditions. Use it alongside other tools to confirm trends before making buy or sell decisions. Consider monitoring your assets’ KRI regularly to spot mean reversion opportunities.
Frequently Asked Questions
The Kairi Relative Index (KRI) is a Japanese technical analysis oscillator that measures the percentage deviation of an asset's current closing price from its simple moving average (SMA) over a set period, typically 10-20 days. It helps identify overbought or oversold conditions and potential price reversals.
KRI is calculated by taking the difference between the current closing price and the SMA, dividing by the SMA, and then multiplying by 100 to get a percentage. The formula is: KRI = ((CCP - SMA) / SMA) × 100, where CCP is the current closing price.
Positive KRI values mean the price is above the SMA, indicating possible overbought conditions and potential selling opportunities. Negative values show the price is below the SMA, suggesting oversold conditions and potential buying opportunities.
Traders use KRI to spot when prices have deviated significantly from their average, signaling possible mean reversion. High positive readings might prompt selling, while low negative readings suggest buying, but it’s best combined with other indicators for confirmation.
KRI works best in ranging or sideways markets where mean reversion is more common. It is less effective in strong trending markets due to its lagging nature and should be used alongside price action and other tools.
Unlike RSI, which has fixed bounds between 0 and 100, KRI has no fixed upper or lower limits and measures percentage deviation from the SMA. This makes it useful for gauging trend strength and momentum based on price distance from the moving average.
Yes, the KRI can be used across stocks, forex, and commodities. It helps traders identify price extremes relative to the moving average and is valuable for timing entries and exits when combined with other analysis tools.
