When the KDJ indicator misleads you
Intermediate · 3 min
KDJ is one of the most sensitive indicators on a chart, and that is its problem. It gives a buy or sell signal every few days, and many of them come to nothing. This lesson explains what the indicator measures, why it fails most often in strong trends, and the checks people use before acting on it.
You add KDJ to a chart and it looks useful straight away. The lines swing up and down, cross each other, and every cross seems to line up with a turn in the price. Then you start acting on the crosses and find that the price often carries on the way it was going. The indicator has not broken. It is doing exactly what it was built to do, which is react fast. Reacting fast and being right are different things.
- KDJ
- An indicator drawn in its own panel under the chart, with three lines. K shows where today's close sits inside the range of the last nine days, from 0 at the bottom of that range to 100 at the top, smoothed a little. D is a slower, smoothed copy of K. J is 3 × K − 2 × D, which exaggerates the gap between them and can run past 0 or 100.
- golden cross
- K crossing up through D. It is read as a buy signal. The same name is also used for a short moving average crossing above a long one, so check which one a person means.
- death cross
- K crossing down through D. It is read as a sell signal.
- overbought
- KDJ above about 80. The close has been sitting near the top of its recent range. It does not mean the price is too high or due to fall.
- oversold
- KDJ below about 20. The close has been sitting near the bottom of its recent range. It does not mean the price is cheap or due to rise.
Working out one day's KDJ on a ₹448 close
- Lowest price in the last 9 days
- ₹400
- Highest price in the last 9 days
- ₹460
- Today's close
- ₹448
- Where the close sits: (448 − 400) ÷ (460 − 400)
- 80 out of 100
- Yesterday's K and D
- 65 and 60
- Today's K: two-thirds of 65 plus one-third of 80
- 70
- Today's D: two-thirds of 60 plus one-third of 70
- 63.3
- Today's J: 3 × 70 − 2 × 63.3
- 83.3
Everything here comes from the last nine days of prices. A single strong day can move the close from the middle of that range to the top, and K moves with it. That is where the sensitivity comes from. Nothing in the calculation looks at where the price goes next.
Why it fails in strong trends
In a share that keeps climbing, the close sits near the top of its nine-day range day after day. KDJ stays above 80 and shows overbought for weeks. Every small pause brings a death cross. If you sell on each one, you sell early and again and again, and miss most of the rise. A steady fall does the same thing the other way round, with a string of golden crosses that each fail. KDJ is at its least reliable when the trend is at its strongest.
- Check the longer chart. A golden cross on the daily chart means less when the weekly chart is still falling.
- Look at the shape the KDJ line makes. A double or triple low at low levels is read as more meaningful than a single cross.
- Let the trend go first. Ignore crosses that go against the trend until the price breaks its trend line.
Each of those gets its own lesson below. They share one idea. A KDJ cross on its own is not enough. You need a second piece of evidence from somewhere else on the chart before you act.
In this topic
Look at the same share on a weekly chart before you trust a cross on the daily one.
Intermediate · 2 min
A double or triple low in KDJ at low levels is read as more meaningful than one cross.
Intermediate · 2 min
Ignore KDJ crosses against a strong trend until the price breaks its trend line.
Intermediate · 2 min
Try this in the app
- Research — open a share and look at its price history
Share this lesson
Works with
- Trends — A share in a trend keeps making higher highs, or lower lows — and most of the time it is doing neither.
- Telling a trend from noise — Trend lines and moving averages both describe what has already happened.
- Head and shoulders bottom — Three lows, the middle one deepest, and a line across the bounces between them that the price has to close above.
- Support and resistance — Prices where a share has repeatedly stopped falling, or stopped rising.