What is the Kairi Relative Index (KRI)?
The Kairi Relative Index (KRI) is a type of oscillator indicator. It measures the deviation of an asset price from its daily average over a certain period of time, which is usually 10 to 20 days. The index was originally developed in Japan and serves as a tool for technical analysis.
Traders can time their transactions based on the KRI. However, the KRI is less commonly used nowadays, as other oscillators, such as the Relative Strength Index (RSI), are gaining more popularity.
- The Kairi Relative Index (KRI) is a momentum oscillator indicator that measures the change of an asset price during a specific time period. The index compares the current price with its moving average over the look-back period.
- The KRI swings up and down around zero. A value far above zero indicates overbought and gives a selling signal, while a value far below zero indicates oversold and gives a buying signal.
- Other types of momentum oscillators include the Relative Strength Index (RSI), stochastic oscillator, etc.
Understanding the Kairi Relative Index
The Kairi Relative Index (KRI) is a momentum oscillator indicator, which supports technical analysis by monitoring the rate of price change. A momentum oscillator measures the change of an asset price during a specific time period. It is usually calculated by dividing the current price by the price of a previous period. Based on the formula, the calculation of different oscillator indicators varies to better serve different purposes.
Typically, the result is multiplied by 100, which gives a threshold of 100. A value below 100 indicates a negative momentum with decreasing price, and a value above 100 indicates a positive momentum with increasing price over the chosen time period.
No upper or lower boundaries exist for a momentum oscillator, but a high or low value supports an assumption that the trend will continue, and thus gives a buy or sell signal. However, if the price increase or decrease is not confirmed by its momentum oscillator, a mean-reversal movement is signaled.
The KRI is one of the many types of momentum oscillators. It compares the current price with the moving average of the price during the current chosen period is calculated as following:
- Price – Current price
- MVA – Simple moving average of price over the current period
Due to a different method of calculation. The KRI can be either a positive or a negative number. When the current price is higher than the MVA, the KRI is positive; when the current price is lower than the MVA, the KRI is negative.
For example, if the price of a security is currently $50 and the current 10-day MVA is $60, the KRI will be -16.7 [($50–$60) / $60*100]. If the price increases to $90 two weeks later, and the 10-day MVA also increases to $70, the KRI will be 28.6 [($90–$70) / $70*100].
Let’s assume a value of 28.6 is a high point for the KRI of the asset. It means the asset might be overbought, and a movement of mean-reversal might occur soon.
The Use of the Kari Relative Index
The KRI, as a tool for technical analysis, facilitates traders to make buy and sell decisions. The KRI is presented as a line moving up and down around zero. An upward sloping KRI line indicates an upward momentum of price, while a downward sloping KRI line indicates a downward momentum of price. The momentum is strong when the line is far away from zero.
When the KRI is significantly high above zero, the asset is probably overbought (overvalued). This can be a selling signal to traders, expecting for mean-reversal or corrective pullback. A KRI significantly down below zero is a signal of oversold (undervalued), and traders typically make buy decisions based on the information.
The Relative Strength Index (RSI) is another type of momentum oscillator, which is now used more often than the KRI. It measures the speed of price movements. Different from the KRI, which compares the current asset price and the moving average, the RSI compares the previous average gain and loss with the current gain and loss.
The RSI moves between 0 and 100 with a threshold at 70. Typically, an RSI above 70 indicates the asset may be oversold (overvalued), while a value below 30 indicates the asset is oversold (undervalued) and gives a selling signal.
A stochastic oscillator compares the most recent closing price with the difference between the high and low of a previous period. The mean-reversal level of a stochastic oscillator depends on the price moving range over the look-back period, which is 14 days typically.
The use of a stochastic oscillator is based on the assumption that the most recent closing price should settle along with the current trend. Thus, it works most effectively within a consistent trading range, for example, in a choppy market.
CFI is the official provider of the global Capital Markets & Securities Analyst (CMSA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below will be useful: