What is the Kairi Relative Index?

Kairi Relative Index in trading is an old Japanese tool with unclear origins and declining use today because of the rise of more popular indicators like Welles Wilder’s Relative Strength Index (RSI).

Kairi’s background is mysterious, and it’s rarely used now, even in places where loyalty to Japanese indicators, like Russia and parts of Asia, still exists.

First off, both are considered oscillators. Oscillators move up and down with price changes on a chart as the market fluctuates. However, each has its own formula, giving it a unique purpose.

Both RSI and Kairi are momentum oscillators, and they are seen as leading indicators. Momentum oscillators track the speed at which prices are changing. 

When prices go up, momentum grows, and when prices drop, momentum falls too. This is reflected in how both RSI and Kairi work, as well as how they are calculated.

How to Calculate Kairi Relative in Index Trading

Formula:

KRI = Close- SMAn
        _____________
            SMAn

i. Start by calculating the simple moving average (SMA) using the closing prices for a set number of periods, like 10 (n).

ii. Subtract the n-period SMA from the most recent closing price.

iii. Divide the result by the SMA.

iv. Multiply the outcome by 100 to get the Kairi value.

v. Repeat this process for each new closing period to keep the indicator updated.

How to Use the Kairi Relative Index (KRI) to Analyze the Market

Example 1: Spot Overbought Conditions

Assuming you are trading EUR/USD and have set the KRI to a 10-period setting.

• Step 1: The trader calculates the 10-period simple moving average (SMA) of the closing prices. Assume the 10-period SMA is 1.1050, and the current closing price is 1.1100.
• Step 2: Subtract the SMA from the closing price:
  (1.1100 – 1.1050 = 0.0050)
• Step 3: Divide the result by the SMA:
  (0.0050 ÷ 1.1050 = 0.0045)
• Step 4: Multiply by 100:
  (0.0045 × 100% = 0.45%)

Interpretation: If the KRI shows a value of 0.45%, the beginner would see that the current price is slightly above the SMA.

If the KRI value rises (say above 2-3%), it signal that the market is becoming overbought which is potentially leading to a reversal.

Example 2: Identify Oversold Conditions

Suppose the you are is now analyzing GBP/USD with a 15-period KRI setting.

• Step 1: The 15-period SMA is 1.3000, and the current closing price is 1.2950.
• Step 2: Subtract the SMA from the closing price:
  (1.2950 – 1.3000 = -0.0050)
• Step 3: Divide by the SMA:
  (-0.0050 ÷ 1.3000 = -0.0038)
• Step 4: Multiply by 100:
  (-0.0038 × 100% = -0.38%)

Interpretation: A negative KRI value of -0.38% shows that the price is below the SMA.

If the KRI falls further (e.g., below -2-3%), it means oversold conditions and indicates that the price could soon rise as buyers enter the market.

Example 3: Monitor Trend Reversals

You wants to confirm whether a recent uptrend in AUD/USD is about to reverse.

• Step 1: The 10-period SMA is 0.7100, and the current price is 0.7150.
• Step 2: Subtract the SMA from the closing price:
  (0.7150 – 0.7100 = 0.0050)
• Step 3: Divide by the SMA:
  (0.0050 ÷ 0.7100 = 0.0070)
• Step 4: Multiply by 100:
  (0.0070÷ 100 = 0.70%)

Interpretation: A KRI of 0.70% suggests that the price is slightly above the SMA. However, if the KRI value goes up to over 2-3%, it means the uptrend is overstretched and that signals a potential trend reversal.

How to use Kairi Relative Index in different trading platforms

The Kairi Relative Index (KRI) is not as commonly found on modern trading platforms as popular indicators like RSI, but you can still access it through specific platforms or by manually adding the formula.

Here’s how to use it on different trading platforms:

1. MetaTrader 4 (MT4) / MetaTrader 5 (MT5)

You may not find the KRI as a built-in indicator, but you can add it as a custom indicator. Download the Kairi indicator from a third-party provider and install it to MT4/MT5 by copying the file to the Indicators folder in the platform’s directory.

Once installed, apply it to your chart by selecting it from the list of custom indicators.

Once on the chart, the Kairi Relative Index will oscillate, allowing traders to look for overbought or oversold conditions by analyzing the divergence between price and the index.

2. TradingView

Like MT4/MT5, KRI is not natively available in TradingView’s indicator library. However, you can either search for custom scripts created by other users or program it yourself using TradingView’s Pine Script feature.

After applying the custom script, use it similarly by identifying market conditions where the index signals potential price reversals or trend continuations.

3. NinjaTrader

On NinjaTrader, custom indicators like KRI can be added by importing third-party scripts.

Once you’ve imported it, apply it to your chart and use it to detect overbought/oversold levels or potential price trends based on the separation of price from its historical moving average.

4. cTrader

While cTrader doesn’t have Kairi as a standard feature, you can import custom indicators. After adding the KRI indicator, use it to spot possible price reversals by watching for sharp changes in the indicator value as the price deviates from historical averages.

A Step-by-Step Guide to Applying the Kairi Relative Index

Here’s a simple, step-by-step guide to applying the Kairi Relative Index (KRI) across different trading platforms:

1. MetaTrader 4 (MT4) / MetaTrader 5 (MT5)

Step 1: Download the Kairi Indicator

Search for a third-party Kairi indicator online. You can find this on various trading forums or indicator websites.

Step 2: Install the Kairi Indicator

Copy the downloaded file (usually in .mq4 or .mq5 format) into your MT4/MT5 directory under MQL4 > Indicators (MT4) or MQL5 > Indicators (MT5).

Step 3: Restart MT4/MT5

Close and reopen your MT4/MT5 platform to make the new indicator available.

Step 4: Apply the Indicator

In the platform, go to the Navigator panel, find the custom Kairi indicator under Indicators, and drag it onto your price chart.

Step 5: Adjust Settings

Modify the input parameters as needed (e.g., periods or calculation methods) to suit your trading strategy.

Step 6: Analyze and Trade

Once on the chart, observe how the Kairi line moves relative to price. Use it to identify potential overbought/oversold conditions, which may signal trend reversals.

2. TradingView

Step 1: Search for the Kairi Indicator

In the Indicators tab, search for “Kairi” in the public library of indicators. If not found, search for custom Pine Scripts or create your own using the Pine Script editor.

Step 2: Apply the Custom Script

Select the custom Kairi script you find or create, and click Apply to add it to your chart.

Step 3: Customize the Indicator

Adjust any parameters such as timeframes or calculation methods to suit your analysis style.

Step 4: Use the Indicator

The Kairi Index will appear as an oscillator. Look for price deviations and trend reversal signals based on the indicator’s behavior.

3. NinjaTrader

Step 1: Download the Kairi Indicator

Find a Kairi Relative Index file from a third-party provider or developer website.

Step 2: Import the Indicator

Go to Tools > Import > NinjaScript Add-On. Select the Kairi indicator file and import it.

Step 3: Apply the Indicator

Once imported, go to Indicators, find the Kairi indicator, and add it to your chart.

Step 4: Configure Settings

Adjust settings like periods or smoothing methods to optimize it for your trading strategy.

Step 5: Interpret Signals

Use the Kairi Index to identify momentum changes. It can be especially useful for spotting price reversals or when prices are deviating significantly from their average.

4. cTrader

Step 1: Download the Kairi Indicator

Look for a compatible Kairi Relative Index file (usually in .algo format) from a third-party source.

Step 2: Import the Indicator

Go to cTrader and click on the Automate tab. Select “Import Custom Indicator” and upload the Kairi file.

Step 3: Apply the Indicator

Once added, go to the Indicators section and add Kairi to your chart.

Step 4: Customize Inputs

Fine-tune the parameters (e.g., number of periods) according to the market and your trading plan.

Step 5: Trade with the Indicator

Use Kairi to spot key divergences between price and the indicator, helping you identify possible turning points in trends.

Advantages of Using the Kairi Relative Index (KRI)

1. It is Easy to Understand

The KRI shows how far the current price has moved from its average, making it easy for beginners to grasp whether a market is overbought (too high) or oversold (too low).

2. It Helps Identify Price Reversals

The KRI can signal when a price might reverse direction. If the indicator shows that the price has moved too far above or below its average, it could hint at a coming reversal and that allows traders to enter or exit trades at the right time.

3. Works Well in Sideways Markets

In markets that aren’t trending strongly (sideways or ranging markets), the KRI can help identify points where the price might bounce back from the high (overbought) or low (oversold) levels, which can be helpful for short-term traders.

4. You can Customize it 

The KRI allows traders to adjust the period length for the simple moving average (SMA) it uses. This flexibility means you can tweak it to match different timeframes or markets, making it adaptable to your trading style.

5. KRI is Useful for Short-Term Analysis

The KRI is particularly good for short-term market analysis. Traders who focus on quick trades (day traders or swing traders) can benefit from its ability to show immediate price movements compared to their averages.

6. KRI is a Leading Indicator

As a leading indicator, the KRI attempts to predict market movements before they happen. This can give traders an edge in foreseeing potential turning points in the market, helping them react early.

In short, the KRI is a simple tool that can help traders spot potential reversals, works well in non-trending markets, and offers flexibility in different timeframes. It’s best for short-term traders who want a clear view of price movements relative to their averages.

Limitations of Kairi Relative Index

The Kairi Relative Index (KRI) has some limitations that beginners should be aware of when using it to analyze the market:

1. Less Popular and Hard to Find

The KRI isn’t as widely used as other indicators like the RSI, which means most trading platforms don’t have it built in. This makes it harder to access without downloading or custom scripting, especially for beginners.

2. Limited Historical Information

The KRI doesn’t have much detailed history or documentation available. Since there are no well-known strategies or guides for its use, traders often have to experiment with it, which can be risky for beginners who don’t fully understand it.

3. Not Always Accurate in Fast-Moving Markets

In highly volatile or fast-moving markets, the KRI can give signals that are too early or too late. It might suggest the market is overbought or oversold when it’s not, leading to wrong decisions.

4. Doesn’t Work Well Alone

Like most indicators, KRI shouldn’t be used by itself. It can give false signals, so combining it with other tools (like Relative Strength Index, moving averages, or trend lines) is necessary for more reliable analysis.

5. Limited in Long-Term Trends

The KRI is more useful for short-term analysis. It may not be as effective when trying to analyze long-term trends because it focuses on the short-term relationship between price and its average. Long-term traders may not find it as helpful.

Key Takeaways for You

• A positive KRI indicates the price is higher than the moving average (possible overbought zone if the value is high).
• A negative KRI suggests the price is lower than the moving average (possible oversold zone if the value is very low).
• You should use the KRI along with other indicators (like RSI or trend lines) to confirm potential reversals or trend continuations.