The Kairi Relative Index (KRI) is a technical analysis tool used to identify potential buy and sell signals by measuring the deviation of a security’s current price from its simple moving average (SMA). This indicator helps traders detect overbought and oversold conditions, improving market entry and exit timing.
In this guide, we will explore the origins, calculation, interpretation, real-world applications, and limitations of the Kairi Relative Index. Additionally, we will compare it with other popular indicators to determine its effectiveness in different market conditions.
Origins and History of the Kairi Relative Index
The Kairi Relative Index was developed in Japan and derives its name from the Japanese word “Kairi” (乖離), which means “separation” or “divergence.” It has been used by traders for decades to quantify the difference between an asset’s price and its moving average. While less popular than indicators like the Relative Strength Index (RSI) or Moving Average Convergence Divergence (MACD), it remains a useful tool in technical analysis.
How the Kairi Relative Index Works
The Kairi Relative Index operates on a simple premise: when an asset’s price deviates significantly from its moving average, a price correction is likely to follow.
- If the price is significantly above its SMA, the asset may be overbought, signaling a potential downward reversal.
- If the price is significantly below its SMA, the asset may be oversold, indicating a possible upward movement.
By quantifying this deviation in percentage terms, traders can compare different assets more effectively.
Kairi Relative Index Formula and Calculation
The Kairi Relative Index (KRI) is calculated using the following formula:
KRI=(Current Price−SMA/SMA)×100
Where:
- Current Price = The most recent market price of the asset.
- SMA (Simple Moving Average) = The average closing price over a specific number of periods.
Example Calculation
Consider a stock with:
- Current Price: $50
- 10-Day SMA: $45
Using the formula:
- Subtract the SMA from the current price: $50 – $45 = $5
- Divide the result by the SMA: $5 / $45 = 0.1111
- Convert to percentage: 0.1111 × 100 = 11.11%
This result suggests the stock is 11.11% above its SMA, potentially indicating an overbought condition.
Interpreting the Kairi Relative Index
Unlike oscillators such as RSI, the KRI does not have fixed upper or lower limits. However, traders commonly use the following reference points:
- Above +10% → Overbought (potential for price decline)
- Below -10% → Oversold (potential for price increase)
These thresholds are flexible and should be adjusted based on market volatility and historical price behavior.
Comparing Kairi Relative Index to Other Indicators
| Indicator | Strengths | Weaknesses |
|---|---|---|
| Kairi Relative Index (KRI) | Simple calculation, effective for spotting deviations from trend | No fixed range, requires subjective thresholds |
| Relative Strength Index (RSI) | Defined overbought/oversold levels (70/30), widely used | Lagging indicator, may give false signals in trending markets |
| Moving Average Convergence Divergence (MACD) | Identifies momentum shifts, works well in trends | Less effective in sideways markets, complex interpretation |
| Bollinger Bands | Adapts to volatility, visually intuitive | Can give late signals if used alone |
Key Takeaway: The KRI is best suited for markets where mean reversion plays a key role, whereas RSI and MACD are often better for trend-following strategies.
Real-World Applications of the Kairi Relative Index
1. Stock Market Analysis
Traders use KRI to determine when a stock diverges too far from its moving average, which often precedes a reversal or correction. For example, in the 2020 stock market crash, extreme KRI values helped traders identify heavily oversold conditions.
2. Cryptocurrency Trading
Due to high volatility, crypto traders use KRI to detect extreme price movements relative to trend averages. In Bitcoin trading, a KRI of +15% or higher has historically indicated short-term peaks.
3. Forex Market Strategies
Currency traders incorporate KRI with support and resistance levels to confirm trend exhaustion points.
Limitations and Considerations
- Lack of Standardized Thresholds – The KRI does not have universally accepted reference points, requiring traders to adjust values based on asset volatility.
- False Signals in Strong Trends – In highly trending markets, KRI may remain overbought or oversold for extended periods without reversal.
- Should Not Be Used Alone – Like all technical indicators, KRI is best used in combination with volume analysis, RSI, MACD, or Bollinger Bands.
Key Takeaways
- The Kairi Relative Index measures how much a price deviates from its simple moving average.
- A high KRI (above +10%) suggests overbought conditions, while a low KRI (below -10%) suggests oversold conditions.
- It is useful in mean-reversion strategies but may generate false signals in trending markets.
- Best used alongside other indicators like RSI, MACD, or Bollinger Bands for confirmation.
- No single threshold applies universally—adjust based on market volatility and asset class.
Further Reading: