KDJ is a trading indicator that was created with the intent of making your trading efforts more profitable. KDJ can assist you in determining the trend’s direction as well as the best points of entry. George Lane was the first to introduce it in the futures market. The stochastic oscillator KDJ first emerged as the KD indicator, which was built on the foundation of the William index. The KD indicator, on the other hand, only evaluates the concept of overbought and oversold shares.
KDJ may look identical to the Alligator and the Stochastic Oscillator to those who are familiar with basic technical indicators. And, like the previous two, it aids in determining trend direction/strength and optimized entries.
It is important to note that, like any other trend-following index, the KDJ Indicator can and will generate a high rate of false signals throughout a flat market. Many traders believe that it is worthwhile to use on extended times for this very reason.
Working mechanism
KDJ is made up of three lines (K, D, and J — hence the indicator’s pseudonym) and two sets. The K and D lines are the same as those seen when using the Stochastic Oscillator. The J-line symbolizes the deviation of the D value from the K value. The intersection of these lines will indicate the presence of new trades.
Oversold and overbought stages, as with the Stochastic Oscillator, correlate to occasions when the pattern is likely to decline. By definition, these levels are defined to 20% and 80%, respectively. These can be tweaked for heightened susceptibility and a lower misleading alert score.
Configuring the KDJ Indicator
The indicator can be set in four simple steps:
- Navigate to the ‘Indicators’ tab
- Just go to ‘Trend’ button;
- Select KDJ from the set of possible choices
- Then select Apply without making any changes to the settings.
What are the best trading strategies?
On the chart, the KDJ indicator has three lines: the K line, the D line, and the J line. In the computation, the stochastic index takes into account the highest and lowest rates in the calculation period, as well as the stochastic magnitude of price volatility.
As a result, folks think that the stochastic indicator more accurately reflects price fluctuations, and that its triggering impact is more visible. The stochastic index is denoted by the KD line, where K is the fast index (yellow), D is the slow index (blue), and red is the J line. It can be categorized into three parts based on the value of KDJ: overbought, oversold, and wandering.
In the design process, the KDJ indicator is primarily used to explore the association in between maximum, minimum, and closing prices, and it also encompasses a few of the benefits of the momentum theory, the power predictor, and the trend line.
As a result, studying and judging market dynamics can be relatively fast, rapid, and instinctive, and it is broadly used in stock market short-term trend analysis. In the futures and stock markets, it is the most widely used technical analysis tool.
KDJ Curve Intersection
The KDJ curve’s intersection is split into two categories: golden cross and death cross. If the cross signal to purchase is the “golden cross,” also identified as the “golden cross,” the cross signal to sell is the “death cross,” also identified as the “death cross.”
In general, the K, D, and J lines in the KDJ indicator will also have two or more “golden crosses” and “death crosses” during a stock’s complete upturn and downturn.
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Golden Cross
Once the stock price has been consolidating for a lengthy moment and the K, D, and J lines are all underneath the 50 line, it implies that the stock market is about to strengthen and the stock price drops. The trend has ended, and the market will resume its upward movement, allowing you to begin purchasing stocks for medium- and long-term positions. This is a variation on the “Golden Cross” KDJ indicator.
Whenever the stock price is going through a period of stability while increasing, and the K, D, and J lines are all getting near the 50 line, once the J line and the K line break through the D line at same time, and the trading volume is issued once more, it indicates that the stock market is in a state of power, and the stock price will go up then. You can increase your stock holdings or buy more. This is a variant of the KDJ indicator known as the “Golden Cross.”
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Death Cross
When the J line and the K line tear through the D line at the greater extent (above 80) almost concurrently after the stock price has gone up for a protracted time and a lot in the past time, it suggests that the stock market is about to go from good to great. As the company’s position deteriorates, the share price will plummet precipitously. At this point, most shares should be sold rather than purchased. This is a variation on the KDJ indicator’s “death cross.”
When the share price stock fell for a timeframe and there is no movement for the stock price to bounce back, and various moving totals have established mounting influence on the stock price, the KDJ curve bounced back to near the 80 line after a brief span of time, but failed to return to the 80 line. Above, if the J and K lines break through the D line again, the share market will enter an overall weak industry and the share price will come down. You can either resell the shares or allow time and see. This is an additional feature of the KDJ indicator “death cross.”
Conclusion
The trend following indicator is the KDJ. It is made up of three lines. The indicator’s main points are points 20 and 80, which demonstrate oversold and overbought zones.
The KDJ generates wrong signals. As a result, it may be beneficial to combine it with another indicator, such as the Average True Range (ATR) or the Average Directional Index (ADI) (ADX).
There is no predictor that will provide you with 100 percent successful cues. Make certain that you use proper cash and risk mitigation techniques.