Kairi Relative Index

 Kairi Relative Index is an old Japanese indicator with an unknown founder, an unknown date of inception and a waning popularity in the modern day due to more popular indicators such as Welles Wilder’s Relative Strength Index. Today’s new generation of traders, since the late 70’s,  have grown accustomed to newer, more modern day indicators whose popularity increased with time and practice. Because Kairi has an unknown derivation and used much less even in certain Japanese indicator loyalty zones of Russia and Asia, its continued use is quite questionable.
Add the fact that literally no prior writings can be found in the modern day regarding Kairi. The word itself translates to separate or dissociation. We don’t want deviation in our indicators or price separation, we want perfect market timing indicators that follow market trends and turns.Yet the difference between the two indicators is  slight and yet varied. The only way to understand Kairi Relative Index is to compare it with a Relative Strength Index.
 To begin, both are considered oscillators. Oscillator indicators move with a chart line up or down as markets fluctuate. Calculations vary among each oscillator so each oscillator serves a different market function. RSI and Kairi serve as momentum oscillators and considered leading indicators. Momentum oscillators measure market prices rate of change. As prices rise, momentum increases and a decrease measures a decrease in momentum. Momentum is reflected both in the manner RSI and Kairi operate and in its calculations.
  Kairi calculates as deviation of the current price from its simple moving average as a percent of the moving average. If the percent is high and positive, sell. If the percent is large and negative, buy. To calculate a simple moving average, take X closing prices over Y periods and divide by the periods. Kairi’s formula is Price – SMA over X periods divided by SMA over X periods and multiply by 100. Based on assumptions 10 and 20 day moving averages should be employed to determine price divergences or separations. These are early hints towards entries and exits. So Kairi’s formula indicates a constant moving market, a known method for all Japanese indicators.
    RSI calculates based on up and down closes. 100 – 100 divided by 1+ RS. RS = average gain divided by average losses. This is what allows RSI to be classified as an oscillator. Next, average gain = (previous average gain) X 13 + current gain / 14. First average gain – total of gains during past 14 periods/14. Average loss = (previous average loss) X 13 – current loss/ 14. RSI is a comparison of up and down closes or gains compared to losses. This formula asks the question where has the market been and will the future hold the same promise while Kairi is more of a moving target indicator so entries and exits are easier to hit.
 Both Kairi and RSI are set at standard 14 periods. For faster market responses, set periods lower while higher periods will indicate a slower but sometimes a more accurate market. Yet the recommended 14 periods for RSI works as intended as well for Kairi’s 14 periods. To understand higher periods of RSI, simply insert a higher number in the above formula.  Its Kairi however that sometimes diverges from its RSI counterpart that stems from the intended effects based on their divergent formulas. What is important in this phenomenon is the center line of both indicators.
  Both indicators are also known as center line oscillators. This is the all important line in the middle that determines entry and exits, longs or shorts,  trends and ranges. When lines are at the bottom, normally this indicates an oversold market so its a matter of time before the market bounces. The recommended methodology  for RSI is go long below 30 and short at 70. For the most part, this works because RSI is an accurate indicator. Yet a drawback to RSI is markets can remain in oversold and overbought territory for extended periods. This doesn’t represent a losing position if the market doesn’t bounce immediately, eventually it will, the timing of a buy trade was just to early. Kairi however is more of an early warning indicator to market turns yet prices can diverge from the indication.
The center line simply represents entries and exits for both indicators, 50 for RSI and 0 for Kairi. When the line crosses above the center line, go long, below go short. From the center line to the top represents approximately 500 currency pips while top to bottom entries and exits represent 1000 pips using Kairi and 1200 pips using RSI.
  So if you are long when the line hovers at the bottom, be careful when prices and the line hit resistance at the center line. Same for a short when prices and the line are above the center line. Markets have a tendency to bounce before prices hit the center line in trending markets for both indicators. Shorts may not hit the center line but instead turn down while longs will hit the center line and bounce. Both indicators can be used in any market on any time frame but because of divergent tendencies, monitoring may be required.
 As a forecaster of trends, both indicators work well although some price divergences may occur along the way. This fact of life assumes traders will not rely on one indicator. Its never recommended to use two of the same type indicators. Try a trend indicator rather than an oscillator. As range trades, both are not the best. Gains will be quick and short term until a trend develops.Yet RSI will forecast and earn more points than Kairi in trends.
  Price divergence occurs in two ways for both indicators, trends and center line positions. Both indicators may break the center line on the way down forcing short trades yet markets can easily turn back up and cross the center line leading to losses due to these false breaks. What happens when RSI and Kairi approach the higher levels and far from the center line. How do you know where prices will go. You don’t unless another indicator is used in conjunction. Both can stay in overbought or oversold levels for long periods in trends. So entries and exits are best at the center line with monitoring.
  Charting packages use two types of Kairi indicators. One type, Kairi looks and acts like RSI with another chart Kairi looks like a stock volume indicator or a bar chart. Its recommended to follow the bars up or down. When bars reach the top, sell and buy when they are at the bottom. Here is the greatest opportunity for price divergence regarding Kairi that can lead to false breaks. In this instance, follow candles or use another indicator along with Kairi. In the end, both indicators are accurate but both have divergences.
October 2009 Brian Twomey
  Brian Twomey is a currency trader and Adjunct Professor of Political Science at Gardner-Webb University.

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