KDJ Indicator User Guide | Improve Your Trading Capacity

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KDJ Indicator

The KDJ indicator is a useful metric that may be used to assess and forecast shifts in stock trends and changes in the prices of a trading commodity. The random index is another name for the KDJ indicator. It is a very useful measurement tool that is most typically utilized in short-term stock market trend analysis. KDJ is an indication that was created with the primary intention of making your trade endeavors impactful, and it absolutely deserves your focus.

KDJ can assist you in determining the direction of the trend as well as the best entry locations. KDJ may appear similar to the Alligator and the Stochastic Oscillator to those acquainted with fundamental technical indicators. And, like the two preceding, it aids in determining trend direction/strength and appropriate points of entry. It is worth noting that, as any trend-following predictor, KDJ can and will generate a significant amount of false signals throughout a flatter marketplace. For this purpose, many traders believe it is worthwhile to use on extended durations.

What is the working mechanism?

KDJ is made up of three lines (K, D, and J — therefore the indicator’s title) and two levels. The K and D lines are the same as when using the Stochastic Oscillator. In response, the J-line represents the divergence of the D value from the K. The intersection of these levels will indicate the emergence of new trading possibilities.  KDJ was built and formulated on the basis of the Stochastic Oscillator, with the exception of an extra line known as the signal line “J.”

The percent K (yellow) and percent D (green) values of the signal lines will be presented if they approach the overvalued (above 80) or oversold (below 20) rate. Line J (purple) reflects the divergence of the value of two lines in terms of percent D versus percent K. J’s value may be greater than [0, 100]. Oversold and overbought levels, as with the Stochastic Oscillator, relate to moments when the pattern is likely to decline. By convention, these settings are adjusted at 20% and 80%, respectively. These can be tweaked for higher exposure and a decreased false alert rate.

Installation procedure

Follow these four steps to establish the predictor:

  • Tap on ‘Indicators’ (in the bottom left of the screen); then on ‘Trend.’
  • Select KDJ from the list of options; save the changes without adding any modifications.

How can the KDJ indicator be used for trading

When trading using KDJ, you desire two types of signals. Whenever the three lines intersect just above the overvalued mark, with the blue line over the yellow line and the yellow line above the purple line, you should decide to sell the commodity. KDJ should be used in conjunction with other indicators like the Average Directional Index (ADX) and the Average True Range (ATR) for best results (ATR). The earlier is constantly one step ahead of the curve and can predict a shift to the left. The latter can predict volatility in the market, which is especially relevant given that KDJ does not work on a flat economy.

Inserting the KDJ into the IQ Option chart

After logging in, look for the chart evaluation button on the platform’s left side. When you select it, a menu of the different types of indications will appear. Choose the Trend indicators first, followed by the KDJ. You can also enter the indicator’s title into the text box in the top right corner. The KDJ, together with its three curves, will be displayed in a separate window below your graph. The KDJ indicator is being used in marketing to determine the best time to purchase or sell. Whenever the lines cross at a given point, the signals are received. These occasions are frequently referred to as a golden fork and a dead fork.

Buying with a golden fork

When the three curves coincide, the KDJ indicator gives you a purchase indication. The blue K line crosses above the yellow J line after crossing the D line from bottom to top. At the end is a purple D line. When the golden shape comes beneath the 20 line, the signal becomes much stronger, indicating that the market is overvalued.

Sell with a dead fork

When the lines intersect in such a way that the blue line K crosses the line D from top to bottom, a sell signal is received. The blue line continues beneath the yellow line, while the purple line runs above others. When the dead fork of the KDJ indicator happens in the overbought zone, above the line of 80 value, the signal is stronger.

KDJ curve intersection

The KDJ curve’s intersection takes two forms: the golden cross and the death cross.

  • Golden Cross

Once the stock value has been in a lengthy period of low concentration and the K, D, and J lines are all below the 50 line, the J and K lines nearly simultaneously breaking through the D line signals that the financial sector is about to gain strength and the stock price declines. The trend has ended; the market will resume its upward movement, and you may begin buying assets for medium- and long-term holdings. This is a variant of the KDJ indicator known as the “Golden Cross.”

  • Death cross

When the J line and the Kline pass through the D line at the high level (above 80) virtually simultaneously after the stock price has increased for a long time and a lot in the preceding period, it suggests that the stock market is about to go from leaps and bounds. As the company’s situation deteriorates, the stock price will plummet precipitously. At this point, most stocks should be sold rather than purchased. This is a variant of the KDJ indicator’s “death cross.”

Conclusion

The trend tracking indicator is the KDJ. It is made up of three lines. The indicator’s main points are points 20 and 80, which reflect oversold and overbought levels. The KDJ generates misleading 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 indication that will provide you with 100 percent accurate indications. Make certain that you use correct money and risk management tactics. There is a free IQ Option sample subscription where you may test out the KDJ indicator. Practice trading with it before moving on to a regular account and investing your own capital.

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