What is KDJ indicator?

2023-06-28
Summary:

Explore the KDJ indicator is a vital tool for traders, to spot buy and sell signals. Understand its role in shaping effective trading strategies.

The KDJ index, also known as the random index in Chinese, is a relatively novel and practical technical analysis index. It was first used for the analysis of futures markets, and later it was widely used for the analysis of short-term trends in the stock market. It is the most commonly used technical analysis tool in the futures and stock markets.

The random index KDJ

The random index KDJ is generally a statistical system used for stock analysis. According to statistical principles, the immature random value RSV of the last calculation period is calculated by calculating the highest and lowest prices that have occurred within a specific period (usually 9 days, 9 weeks, etc.), the closing price of the last calculation period, and the proportional relationship between these three values. Then, the K value, D value, and J value are calculated using the method of smooth moving averages. And draw a curve chart to analyze the stock trend.


Origin 

The Chinese name for the KDJ index, also known as the random index, originated in the futures market and was first created by George Lane. The random index KDJ first appeared in the form of a stochastic oscillator, and the Stochastic oscillator was developed on the basis of the William index. However, the stochastic oscillator only judges the phenomenon of overbought and oversold stocks. In the KDJ index, the concept of Moving Average linear speed is integrated to form a more accurate basis for buying and selling signals. In practice, the K line and D line are combined with the J line to form the KDJ indicator. In the design process of KDJ indicators, the main focus is to study the relationship between the highest, lowest, and closing prices while also integrating some advantages of the momentum concept, strength indicators, and moving averages. Therefore, it can quickly and intuitively analyze the market situation and is widely used for short-term trend analysis in the stock market. It is the most commonly used technical analysis tool in the futures and stock markets.


Principles of Indicators

The random indicator KDJ is calculated based on the basic data of the highest, lowest, and closing prices. The K, D, and J values obtained form a point on the coordinates of the indicator, connecting countless such points to form a complete KDJ indicator that can reflect the trend of price fluctuations. It is mainly a technical tool that uses the true amplitude of price fluctuations to reflect the strength of price trends and the phenomenon of overbought and oversold conditions and sends a buying and selling signal before the price has risen or fallen. In the design process, it mainly studies the relationship between the highest, lowest, and closing prices while also integrating some advantages of the momentum concept, strength indicators, and moving averages. Therefore, it can quickly and intuitively analyze the market situation. Due to the fact that the KDJ line is essentially a random fluctuation concept, it is more accurate at grasping short-term market trends.


Scope of Application

Futures, stocks, funds, electronic cash, Securities


Application Guidelines

KDJ random indicators have a relatively sensitive and fast response, making them an excellent technical indicator for analyzing and judging short-term trend bands. Generally, for those who invest in a large band of funds, they gradually enter and absorb when the KDJ value is low in the current month; When the main force operates normally, it tends to focus on the position of the weekly KDJ and make judgments on the cyclic high and low points of the midline band, resulting in the frequent passivation of the daily KDJ caused by unilateral effects; KDJ is extremely sensitive to the direction of stock price changes and is an important method for daily trading in and out. For short-term customers working in small bands, 30 minute and 60 minute KDJ are important reference indicators. For investors who have designated a buying and selling plan to place orders immediately, KDJ can provide the best entry and exit time in 5 minutes and 15 minutes, respectively.

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