The KDJ indicator

The KDJ indicator is a stochastic oscillator. A stochastic oscillator is a momentum indicator. A momentum indicator detects situations in which a financial instrument is overbought or oversold.

Typical for the KDJ indicator is the green J-line. The name J-line comes from the distinct movement made by this line. These movements look like a succession of the letter J.

When the %K and %D lines are at the bottom range and the J-line is below 0 an instrument is considered ‘oversold’. This represents an opportunity to buy. Likewise, a value of J above 100 combined with %K and %D at the top range indicates an instrument which is ‘overbought’. This represents a short sell opportunity.

These are the advantages of the KDJ indicator:

• Can be used on all instruments.
• Accurate for short-term price movements.
• Easy to understand.
• Can be used as a trading signal to open positions.

This example shows the KDJ indicator. J-line dips below the 0-line are short-term buy opportunities, if the %K and %D lines are also in the bottom range. One buy signal is visible in the chart.

This example shows the KDJ indicator. J-line spikes above the 100-line are short sell opportunities, if the %K and %D lines are also in the top range. Three short sell signals are visible in the chart.

The KDJ indicator can be useful as a scalping method or when day trading on smaller time frames.

Practical implementation

Open the chart of an instrument. In the WHS Proposals folder, select the KDJ indicator.