The Ultimate Indicator Combo

Out of all of the technical indicators, KDJ and MACD are probably some of the most widely used oscillating or stochastic indicators. From veteran brokers to rookie retail investors alike, many investors utilize these two indicators in their investment activities.

These two indicators by themselves are very valuable. But when you combine the two indicators in your everyday analysis, then you will have a very powerful tool at your disposal.

It is simple to find the many indicators that Moo'moo offers. There is a thorough description of each indicator and how to use them. To find them, just click the icon near the top or bottom of your chart. You can see this icon directly below.

Then, click on the indicator tab, then click customize, and choose whichever indicator you like. Finally, you will see an indicator description within each indicator you choose.

As an example, here is a small portion of the KDJ indicator description. But for the purposes of this article, I will be explaining how I personally use and interpret both of the MACD and KDJ indicators.

KDJ and MACD are both stochastic indicators that oscillate up and down based on price action of the ticker symbol you are analyzing. KDJ is a fast oscillating indicator. KDJ will move much quicker between its overbought and oversold areas when compared to slow oscillating indicators. MACD is a slow oscillator as it takes much more time to move between its upper and lower bounds. Directly below, you can see a simple example of how these two indicators might look.

KDJ is quicker. So, its movements are more sensitive to the relatively short-term movements in price action. Basically, it doesn't take a lot of movement in price to change the direction of KDJ. This is why I think KDJ is a better tool to use for finding entries or exits into a trade rather than determining the overall trend or a change in the trends. Sometimes, it can be useful if you are planning on executing a relatively quick swing trade as well.

It should be noted that KDJ has overbought and oversold levels near the upper and lower bounds of its chart. When the indicator value is near the top of the chart, the relatively short-term price action is overbought. At this point, some might assume a reversal to the downside may happen in the near future.

Conversely, when KDJ's value is near the bottom of its chart, then the price action is oversold. One might expect a reversal to the upside at this point. Since we are talking about the quick KDJ, these reversals will happen quite often on a relatively shorter timeframe.

MACD is a much slower oscillator. It takes a lot more time and a lot more strength or momentum in price for this indicator to change directions. That is why MACD is relatively better for determining the overall or broader trend. It is also more useful for determining the relatively longer-term trend.

The basic components of MACD are the DIF line, the DEA line, and the histogram. You can customize the DIF and DEA lines to correspond with different moving averages, but the main points to remember are that when the DIF line crosses above the DEA line, that is called a golden cross which is a buy signal. Also, when the DIF line drops below the DEA line, that is a sell signal which is called a death cross.

The histogram is a component of the graph that can indicate directional momentum or strength. The green or red color of the histogram indicates the bullishness or bearishness of the price action. The wider the histogram is, then the more momentum or strength that is associated with the bullishness or bearishness.

While a golden crosses and death crosses indicate potential reversals on relatively longer timeframes, once MACD crosses above or below its histogram, this indicates a change in the long-term trend.

Notice in the chart below how each time MACD crosses below above its histogram, it coincided with the initial moment where a long-term uptrend started and higher lows were eventually printed. Similarly, when MACD crosses below its histogram, a long-term downtrend began, and lower highs followed until MACD crossed back above its histogram. This is the best way to use MACD when analyzing longer timeframes.

Here is an example of KDJ being used on TSLA's chart with daily candles. Notice the many pink candles. These are ares where the direction of KDJ has flipped with the short-term price action as its J line moves above or below its D line.

There are area where you will get mixed or false signals. I have circled these areas with a yellow circle. These are areas where trading purely by KDJ would likely have resulted in a loss.

Here is the same circumstance with the MACD indicator. The purple circles highlight areas where MACD provided false signals on longer time frames. False readings happen often with all indicators. So, it is best to use multiple indicators. Along with the indicators, it would also be wise to be mindful of the technical, macroeconomic, financial, and fundamental environment of the company you are analyzing before making any investment decisions.

Here is a chart with MACD and KDJ combined. When trying to decide on a good entry or exit point, then they are a very powerful tool when used together.

KDJ is a faster oscillator, so you will see many more signals than MACD. But when you see MACD quickly reverse after KDJ and in the same direction, then it appears to be the perfect entry points to ride the newly changed trend for an extended period of time for max profit. Basically, when it looks like they are reversing at almost the exact same time, then you get the best trades out of it.

There are other methods and strategies to using MACD and KDJ, like divergence strategies or trend confirmation. I have provided a few examples of these as well as explanations of some other indicators and insights into how to use them in tandem with one another. Click the links below to check them out.

As always, I am not a financial professional, and this is not investment advice. Be careful and be patient. Dont anticipate the market. Rather, participate in the market. Don't invest money that you can't afford to lose. Give some of your investments time and know when to cut your losses.

Don't be greedy. Don't invest in anything you don't understand. Don't put all of your eggs in one basket. Don't listen to the hype. Don't fomo or panic into or out of trades. Do your own due diligence. And just follow the trends. A trend is your friend. Good luck trading.