KDJ, A Short-Term Trading Tool
Here are the basics on KDJ, plus a few more helpful tips on how to use KDJ properly.
KDJ can be used to find potential overbought and oversold areas and potential reversals in price action. The basics of KDJ that you need to know are its overbought and oversold areas. A KDJ reading of 80 or above is overbought, and a reading of 20 or under is an oversold reading. Typically, an overbought reading is bearish, and an oversold reading is bullish.
KDJ can be used to find potential overbought and oversold areas and potential reversals in price action. The basics of KDJ that you need to know are its overbought and oversold areas. A KDJ reading of 80 or above is overbought, and a reading of 20 or under is an oversold reading. Typically, an overbought reading is bearish, and an oversold reading is bullish.
More basic aspects of KDJ are its bullish and bearish crosses. A bullish cross is indicative of short-term upside. A bearish cross shows a short-term downside. These crosses are not 100% dependable all of the time because KDJ is a lagging indicator. But sometimes It can work beautifully with a high success rate.
Here is an example with TSM's chart with daily candles. If you took a long position at almost every bullish cross, then you would have been profitable. Conversely, if you took a short position at every bearish cross, then you would have been profitable. Of course there are always false signals and things dont always work out so perfectly like you see here.
Here is a helpful tip about KDJ during a rally. KDJ value will typically stay above 50 in a sustained rally. You will see bearish crosses in overbought territory where it would have been a bad idea to take profit or go short like KDJ would typically call for. Conversly, in a sharp downtrend KDJ value stays below 50.
Here you can see a chart with the stock $Tesla (TSLA.US)$ , which was in a strong rally. The KDJ value during this time stayed above 50 furing the rally. Seemingly bouncing off of the 50 value as if it was a support level.
As seen above and below, bullish and bearish crosses are not always correct. Sometimes you will break even or take a loss off of KDJ trading. Other times you will see false crosses that indicate false reversals in price action.
How would you know if it is a false bullish or bearish cross before its too late? You can use the KDJ 50 value as a sort of confirmation to provide you with more confidence in your trade. Usually you want to look for bullish crosses in oversold territory, and bearish crosses in overbought territory.
When you get a bullish crossover in oversold territory then you can watch for KDJ to cross above the 50 value for confirmation. In a bearish crossover KDJ can confirm the downtrend when it crosses below the 50 value. Here is an example below with $Apple (AAPL.US)$
To be more successful with KDJ you could pair it with other indicators such as MACD and RSI to get more confirmation in your trading. I like to think of KDJ as a faster paced indicator rather than a short term indicator as it works in any time frame but at a faster pace as compared to RSI and MACD. So typically you would get a reversal reading on KDJ before other indicators.
For example with $Meta Platforms (FB.US)$ on the weekly candles you can see how KDJ gives a bullish or bearish signals before RSI and then MACD typically follows last. Occasionally, you can use RSI and MACD’s reversal signals as confirmation of KDJ’s reversal reading.
Always remember that KDJ is a lagging indicator as it is dependent on price action before it is calculated. So it does not predict the future. It only indicates past price action. So don't use it as a crystal ball. And in a bull market you should mostly search for bullish signals. And in a bear market you should look for bearish signals to be more successful. I hope this provides a little more insight on how to use KDJ properly.
Good Luck Trading ![]()
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solo invest : I never really understood the meaning behind KDJ and how to use it, everyone makes it so complex and hard to understand but I can clearly understand the way you explain it here, thanks I appreciate that.
SpyderCall OP solo invest : Heck yea no problem. I keep KDJ on my screen at all times. It is especially good for day trading and short term swing trading
solo invest : I like that example with $Taiwan Semiconductor (TSM.US)$. KDJ trading on those daily candles would have been very profitable
feng yongdie SpyderCall OP : May I ask, is it better to watch 5 minutes during the day or 10 minutes?
SpyderCall OP : trading KDJ on 5 and 10 candles would be very fast paced trading. Those time frames are definitely only for daytrading. But most important. thing to know when trading on very small time frames like that is that KDJ must look good on daily candles before you should consider day trading or swing trading anything on 5 minute or 10 minute time frames
icezzz : Thanks for ur sharing, very clear
xyin88 :![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
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Ben Albright : Thank you
Nblaze : What time frame on this indicator do you find works best for scalping and day trading. ? Awesome
breakdown on how this works btw.
SpyderCall OP : Thanks. I always look at the daily candles first. The daily candles show the overall trend if you are short term trading like day trading and swing trading. You can predict where there will possibly be areas of extra volatility or volume. Usually these areas of interest will be near a major support or resistance on the daily candles. Then I will usually wait for the daily candles to be near a support or resistance level where a potential breakout or reversal might happen. After that I will zoom in to the 4 hour candles or the 1 hour candles to follow those shorter term trends and find an entry for swing trading. And I always pay attention to the one minute candles to see the volume coming in to see if other investors are making the same call i am trying to make. But for very short term day trading I still watch the 1 hour and 4 hour candle and indicators. But i will trade the 3 minute, 5 minute, or 15 minute candles with very fast entries and exits and i still watch the one minute candles volume all the time
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