Shapes in the KDJ line

Because KDJ moves so fast, a single cross often comes early. The line dips into oversold, crosses up, and then dips again a few days later while the price makes a new low. A way around that is to stop watching for the cross and watch for a shape instead. A shape takes several swings to form, so it filters out the single twitch.

Shapes at low levels

• W-bottom. KDJ falls below 20, bounces, falls back to about the same low, then climbs. The second low shows the selling did not push it any further.
• Triple bottom. The same idea with three lows at about the same level.
• Head-and-shoulders bottom. Three lows with the middle one deepest, the same shape as the price pattern of that name, drawn in the KDJ line instead.

People read these as buying signals when they form below 20. The same shapes around 50 mean very little, because the line is simply in the middle of its range.

Shapes at high levels

• M-top. KDJ rises above 80, drops, rises back to about the same high, then falls. The second peak shows buyers could not push it higher.
• Head-and-shoulders top. Three highs with the middle one highest.

People read these as selling signals, and they are taken more seriously after a long, strong rise. A shape in KDJ is still a shape in an indicator. Check that the price chart is doing something similar before you act.