Traders use technical analysis tools to find the best points to enter the positions. IQ Option has many helpful indicators in its offer. In today's article, I will focus on one which is called the KDJ indicator.
Thanks to the KDJ it is possible to define the direction of the trend, and its strength and find entry points for trading positions.
Contents
What is the KDJ indicator
The KDJ is a trend following indicator. It resembles a little bit the Stochastic Oscillator and the Alligator. They all serve the same purpose.
KDJ indicator formula
There are three lines that form the KDJ and they are called the K, the D and the J. As you see, the name is pretty simple and derives from the curves of the indicator. You can remember the K and the D lines from the Stochastic Oscillator. But the J is new. It shows the divergence of the D from the K value.
The KDJ oscillator calculation is based on the recorded lowest, highest and closing prices over a specific period.
The KDJ oscillates between 0 and 100 values. It is possible to catch when the asset falls into oversold and overbought zones with the KDJ. There are two horizontal lines marked as 20 and 80 and when the indicator runs below or above, it means the trend will most probably reverse soon.
You can change the values of these levels manually.
Adding the KDJ to the IQ Option chart
Once you are logged in, find the chart analysis icon on the left side of the platform. Click on it and the list of the indicators types will be displayed. Choose the Trend indicators and then the KDJ.
You can also type the name of the indicator in the search box on the top right side.
The KDJ with its three curves will appear in the separate window beneath your chart.
How do you read KDJ lines?
The KDJ oscillator is used in trading to find optimal points to open a buy or sell transactions. The signals are received when the lines cross over in a specific moment. These moments are often known as a golden fork and a dead fork.
Buy with a golden fork
You get a buy signal from the KDJ indicator when the three curves converge. The blue K line crosses the D line from bottom to top and then moves above the yellow J line. The purple D line is at the bottom.
The signal is even stronger when the golden form appears under the 20 line, that is in the oversold area.
Sell with a dead fork
A sell signal is received when the lines converge in a way that the blue line K crosses the line D from top to bottom. The blue line continues below the yellow and the purple one runs above the others.
The signal is stronger when the dead fork of the KDJ oscillator occurs in the overbought zone that is above the line of 80 value.
Is KDJ accurate?
The KDJ is the trend following indicator. It consists of three lines. The key points of the indicator are points 20 and 80 which show oversold and overbought areas.
The KDJ produces false signals. That is why it might be a good idea to combine it with another indicator such as the Average True Range (ATR) or the Average Directional Index (ADX).
No indicator will give you 100% successful signals. Make sure you apply proper money and risk management strategies.
There is a free IQ Option demo account where you can check how the KDJ indicator behaves. Practice trading with it there before you move to the real account and invest your own money.
Have you heard about the KDJ before? Do you have any experience in using it? Share your thoughts with us in the comments section below.
Best of luck!