Class 31: Introduction to KDJ Oscillator

Duyurular Class 31: Introduction to KDJ Oscillator

2024-04-26 08:47:58 UTC 1148 Okundu

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**highlights**
①. Gate.io's "Basic Futures Courses" course introduces various methods of technical analysis that are commonly employed in futures trading. These courses aim to help traders establish a comprehensive framework for technical analysis. Covered topics include the basics of Candlestick charts, technical patterns, moving averages, trend lines, and the application of technical indicators.
②. This piece will cover the basics of KDJ oscillator, and will explain composition, technical meaning and practical application of the indicator.

**1. What is KDJ ?**
The KDJ is recognized as a standard detrended oscillator in technical analysis, featuring three lines that usually oscillate within a range of 0 to 100. It is uncommon for the values to extend beyond this range, with the majority of movements occurring within the 20 to 80 interval.
![](https://gimg2.gateimg.com/image/article/17115343941280X12800000.png)

**2. Application of KDJ **
The KDJ oscillator is helpful in pinpointing potential tops and bottoms in market trends. Oscillators, when used in conjunction with price trends and trading volume data, are key tools that traders leverage to assess market conditions. The primary uses of oscillators include:
①. Detecting Overbought/Oversold Levels: Oscillators can indicate when an asset is overbought or oversold .
②. Mirror price trend: Since these indicators are derived from price data, the trend of a technical indicator is closely tied to the underlying price movements of the asset it is based on. For example, in a bullish market, the indicator's lines will typically form a series of ascending peaks and troughs. Conversely, in a bearish market, the indicator will produce descending peaks and troughs. 
③. Crossover of lines: The concept of line crossovers is a key aspect of using technical indicators. It mainly involves the crossing of the fast line and slow line. When the fast line crosses below the slow line , it is known as a "death cross," which is typically interpreted as a bearish signal. Conversely, when the fast line crosses above the slow line, it forms a "golden cross," which is seen as a bullish signal.
④. Long-short dividing line: The long-short dividing line is a crucial component in swing trading strategies, especially when utilizing oscillators as indicators. It typically represents a horizontal line that intersects the indicator's scale at a key level, such as 0 or 50. For instance, with the KDJ indicator, the long-short dividing line is set at the 50-mark. In the case of the MACD indicator, the dividing line is the 0 axis.

**3.  Connotations of KD values**
①.  KD values range between 0-100.
When the K and D values are both above 50, it indicates a bullish market, suggesting traders to buy assets; when the  K and D values are both below 50, it suggests a bearish market, signaling an opportunity to sell assets. Below table summarizes connotations of the different KD values:
![](https://gimg2.gateimg.com/image/article/1711534490screenshot-20240327-180928000000000.png)

②. Crossover of K line and D line
  A. When the K line and the D line are both less than 50, and the K line breaks through the D line upwards, it indicates a strong bullish market and the currency price will very likely to rise further. Users should consider enlarging positions or maintaining their holdings. This crossover represents a golden cross of the indicators. Below is an example of the cross.
  B. When both the K line and the D line are less than 20, and the K line breaks through the D line upwards, it indicates likelihood for immediate reversal: the market will turn from bearish to bullish and price will rally. This suggests a signal for buying assets or maintaining holdings and represents another form of the golden cross of the KDJ indicator. Below is an example of the cross. 
![](https://gimg2.gateimg.com/image/article/1711534621uuu2.png)
  C. When both the K line and the D line are greater than 80, and the K line falls below the D line, it indicates that the market is about to turn from bull to bear, and the currency price will fall. Known as  death cross of  KDJ indicator, it suggests a signal to exit positions.
  D. When the K line and the D line are both greater than 50, and the K line falls below the D line, it indicates that the market will experience another round of decline. Traders should continue exiting positions or just wait and see. This represents another death cross of the KDJ indicator. 
  
**4. Issues of attention when using KDJ**
***Indicator Passivation***
Indicator passivation is a scenario in which technical indicators become less reliable or effective at providing distinct trading signals. This typically occurs in market environments characterized by erratic price movements or when the market lacks a definitive trend. Oscillator indicators are prone to passivation, especially when market movements are so extreme that they surpass the time period used for the indicator's calculations. Short-term indicators are more susceptible to this issue due to their sensitivity to immediate price changes. Indicator passivation can manifest in two forms: bull passivation and bear passivation.

**5. Summary**
KDJ oscillator is one of the common tools used in market analysis. However, relying solely on the KDJ can be risky. Prudent traders often combine the KDJ with other technical analysis techniques. By integrating the KDJ with a broader set of analytical tools, traders can create a more robust and reliable trading strategy. 
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![](https://gimg2.gateimg.com/image/article/1711534696starttrading.jpeg)

**Disclaimer **
This article is for informational purposes only and does not constitute investment advice. Gate.io is not responsible for any investment decisions you make. Content related to technical analysis, market assessments, trading skills, and traders' insights should not be considered a basis for investment. Investing carries potential risks and uncertainties. This article offers no guarantees or assurances of returns on any type of investment.

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