The Kairi Relative Index (KRI) is a simple technical‑analysis indicator that measures how far an asset’s current closing price has diverged, in percentage terms, from its simple moving average (SMA) over a chosen number of periods. Traders use the KRI to identify potential overbought or oversold conditions: large positive readings suggest the price is well above its recent average (possible overbought → consider selling or waiting for a pullback), while large negative readings suggest the price is well below its recent average (possible oversold → consider buying or waiting for a bounce).
Key takeaways
– KRI quantifies the percent distance between the close and an n‑period SMA.
– Typical n values are 10–20 periods (daily, weekly, etc.), depending on the trader’s time frame.
– Interpretation is asset‑specific: volatile assets will show much wider KRI ranges than less volatile ones. Determine extreme levels by examining the asset’s historical KRI.
– KRI is a lagging, mean‑reversion‑type indicator. Use confirmation (price action, volume, other indicators) and risk management — don’t trade it in isolation.
The formula for the Kairi Relative Index (KRI)
KRI = ((Close − SMA_n) / SMA_n) × 100
where:
– Close = current closing price
– SMA_n = simple moving average of the last n closes
– n = number of periods used for the SMA
How to calculate the Kairi Relative Index — step‑by‑step
1. Choose your chart timeframe and period (n).
• For short‑term trading, n = 10 is common; for slightly longer lookbacks, n = 20.
2. Calculate the n‑period simple moving average (SMA_n).
• SMA_n = (Close1 + Close2 + … + Closen) / n
3. Compute the KRI for the latest bar:
• KRI = ((Close_latest − SMA_n) / SMA_n) × 100
4. Plot the KRI over time and inspect historical extremes for that asset (highs and lows).
5. Decide your thresholds for signals based on the asset’s historical behavior and your strategy (see practical rules below).
What the KRI tells you (interpretation)
– Positive KRI: price is above its n‑period SMA. Larger positive values mean the price is farther above the average (strength/overbought).
– Negative KRI: price is below its n‑period SMA. Larger negative values mean the price is farther below the average (weakness/oversold).
– Small absolute values (near zero): price is near the SMA, indicating little deviation from the mean.
– Important: extreme KRI values imply strong recent momentum. An “extreme” reading does not guarantee an immediate reversal — strong trends can push and sustain extreme KRI values.
Practical example (simple numeric example)
– Suppose a 10‑day SMA for a stock is 100.00 and the most recent close is 110.00.
KRI = ((110 − 100) / 100) × 100 = 10%
Interpretation: price is 10% above the 10‑day average. Depending on historical behavior for this asset, 10% may be a notable overbought reading (signal to watch for a pullback or wait for confirmation before selling).
– By contrast, if SMA = 100 and close = 92, KRI = ((92 − 100)/100) × 100 = −8% (potential oversold).
Example using asset‑specific ranges (observations from historical studies)
– Broad indexes/ETFs (e.g., SPY): historically, extremely low readings might be −7% to −15% and highs +4% to +10%, but these ranges vary over time and with volatility.
– Individual volatile stocks: extremes can be much wider (e.g., −40% to +50% or beyond).
– Example noted for Apple (weekly data over several years): upside extremes ~ +15 or higher; downside extremes ~ −10 or lower. (These are examples — always compute your asset’s own historical KRI).
Practical trading rules and steps for using KRI
1. Choose period (n) aligned with your time horizon (e.g., 10 for short term, 20 for intermediate).
2. Calculate and plot KRI; review several years of history to identify realistic extremes for that asset.
3. Use KRI as a mean‑reversion signal:
• Consider buys when KRI reaches a historically extreme negative level, but wait for confirmation (e.g., bullish reversal candle, rising volume, or other momentum indicators turning up).
• Consider reducing exposure or selling when KRI reaches a historically extreme positive level, but wait for price or confirming indicators to show a reversal.
4. Combine KRI with a trend filter:
• In a strong uptrend, avoid using KRI sell signals as short signals; instead, treat positive extremes as opportunities to trim positions.
• In a strong downtrend, avoid using KRI buy signals as immediate entries; use them for potential scalps or small contrarian trades with tight risk controls.
5. Confirm with other indicators or price action:
• Use RSI, MACD, volume spikes, support/resistance, candlestick patterns, or trendlines to confirm turn.
6. Risk management:
• Define stop‑loss levels and position sizing before entering trades.
• Consider smaller position sizes when trading KRI extremes in strongly trending markets.
7. Backtest and paper‑trade:
• Backtest your chosen n and thresholds on the specific asset to find what historically worked and avoid overfitting.
8. Monitor volatility regime:
• When realized volatility increases, expand your thresholds; when volatility is low, tighten thresholds.
Difference between the KRI and the MACD
– Core calculation:
• KRI = percentage distance between price (close) and a single SMA; it measures deviation from the mean.
• MACD = difference between two exponential moving averages (typically 12‑ and 26‑period EMAs), often plotted with a signal line (9‑period EMA of MACD) and histogram; it measures momentum and convergence/divergence of EMAs.
– Signal type:
• KRI is a mean‑reversion style metric (how far price is from average).
• MACD is a momentum/trend oscillator (speed and change in trend).
– Practical use:
• KRI helps identify potential overbought/oversold conditions relative to the SMA.
• MACD helps identify trend changes, momentum shifts, and crossovers that suggest continuation or reversal.
– Because they measure different things, many traders use KRI and MACD together: KRI signals an extreme deviation and MACD confirms whether momentum is fading or continuing.
Limitations and cautions when using the KRI
– Lagging nature: KRI depends on an SMA, which is backward‑looking; it can be late to detect reversals.
– Subject to volatility: assets with different volatilities have different “normal” ranges; applying one universal threshold across assets will produce misleading signals.
– False signals in strong trends: strong trending markets can produce prolonged extremes; trying to fade a strong trend based solely on KRI can lead to large losses.
– Indicator can change without price reversal: KRI can move toward zero (narrow) while price continues in the same direction if the SMA is catching up — this can generate misleading “improvement” readings without a true price turnaround.
– Not predictive by itself: KRI shows deviation, not future direction. Confirm with other evidence.
– Historical averages are not guarantees: past extreme levels are only a guide — regime shifts can change typical KRI behavior.
Practical checklist for implementing KRI in a trading plan
– Select timeframe and n consistent with your trading horizon.
– Compute SMA and KRI, and chart them alongside price.
– Identify historical KRI extremes for the specific asset and mark probable buy/sell threshold ranges.
– Define explicit entry rules (including confirmation signals) and exit/stops.
– Perform backtesting and forward paper testing.
– Use position sizing and risk controls; avoid trading KRI extremes alone without confirmation.
– Reassess thresholds periodically, especially after volatility regime changes.
Sources and further reading
– Investopedia, “Kairi Relative Index (KRI).” (Source for definition, history, typical ranges, and interpretation.)
– Corporate Finance Institute (CFI), “Kairi Relative Index (KRI).”
– compute KRI for a specific ticker and timeframe and show historical extremes, or
– backtest a simple KRI‑based rule set (with chosen n and confirmation rules) on a given asset and provide performance metrics. Which would you prefer?