KDJ Indicator is one of the indicator tools employed in technical analysis when trading currency pairs, cryptocurrencies… This article will explain KDJ Indicator – Understanding and Using KDJ in Trading in the simplest way a beginner Trader or advance trader will comprehend every bit of it.
What is KDJ Indicator?
KDJ is an indicator tool designed with the purpose of making your trading efforts as effective as possible. It is used to predict changes in trend directions and price patterns. KDJ is similar to the Stochastic Oscillator Indicator with the only difference seen in the availability of the J line.
KDJ Indicator is also referred to as a Leading Indicator as it follows the trend of the market and every data presented by the KDJ is what is happening in the market at that particular moment, hence the name and not a lagging Indicator like the Moving Average (MA), Moving Average Convergence Divergence (MACD).
KDJ is made up of 3 lines: K Line (Yellow), D Line (Pink), J Line (Purple). The J Line represents the convergence and divergence of the D Line from the K Line. Points of convergence are always seen as entry points.
Convergence: the J Line is seen to point or move close to the K Line and D Line.
Divergence: the J Line is seen to move farther from the K Line and D Line.
KDJ Indicator Trading Strategy
To support your technical analysis using the KDJ, the below stated KDJ trading strategy should be employed.
- At point of convergence where the J Line crosses the K Line and D Line, you can BUY/LONG (i.e if the J Line crosses from beneath the K Line and D Line above) and you can SELL/SHORT (if the J Line crosses from above the K Line and D Line below).
- J Line shows an Overbought and Oversold conditions. Overbought condition is seen from above 80 (selling/shorting the trade should be considered). Oversold is seen from below 20 (buying/longing the trade should be considered).
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- The data presented by the KDJ can be confirmed using the Relative Strength Index (RSI) as both are Leading Indicators.
- The KDJ should not be depended upon as the only indicator for technical analysis as indebt knowledge of Candlesticks, Support and Resistance, Demand and Supply Zones, etc should be greatly and primarily considered.
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