Letting the trend go first
Intermediate · 2 min
Ignore KDJ crosses against a strong trend until the price breaks its trend line.
In a strong rise, KDJ keeps giving death crosses and the price keeps climbing. In a strong fall, it keeps giving golden crosses and the price keeps falling. Both methods here deal with that the same way. You decide when the trend is over from the price chart, and only then start listening to KDJ.
The trend line method
In a rising share, draw a line joining the low points of its pullbacks. While the price stays above that line, ignore every death cross, however high KDJ is. When the price closes below the line, the rise has stopped fitting its own pattern. A death cross from then on is the one people act on. In a falling share, draw the line along the highs, and ignore golden crosses until the price closes above it.
The wave counting method
- wave count
- Numbering the moves in a trend. In a rise, the up-moves are waves 1, 3 and 5, with pullbacks 2 and 4 between them. The idea comes from Elliott wave theory, which says trends often run in five such moves. The theory is widely used and widely disputed.
Some people use the wave count to decide how much weight to give a KDJ sell signal. A death cross in wave 1 is ignored, because the rise has only just started. One in wave 3 gets more attention. One in wave 5 gets the most, because five waves are read as a complete rise. In a fall it works the other way round. Ignore golden crosses in the first leg down, and give them more weight in the third and fifth.
Try this in the app
- Research — open a share and draw its trend line
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.