KDJ indicator

When it comes to determining the trend, as well as when to enter a trade, the KDJ Indicator is your go-to indicator. Do you trade futures or the stock market ? If you do, then the KDJ Indicator is for you.If you have used the Alligator or Stochastic Oscillator, this indicator may be a little easier to work with. In fact, the KDJ is a type of stochastic indicator. Just like these two indicators, the KDJ isn't used for trading in flat markets. It may not work particularly well in volatile markets. Seasoned forex traders prefer to use the KDJ.

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Interpret the KDJ

Just as the Stochastic, the KDJ has the K & D lines, plus the J. This last one represents the divergence from the K-line. When all three converge, it usually signals a possible trend forming.

In the image above you can see the J-line (in green). When it crosses the other two there's usually a change in the direction of the trend.

Normally seasoned traders wait until all three lines enter either the overbought or oversold zones.

For example, if they are all in the overbought zone, with the J-line (especially) being above the other two, then it's usually a good idea to SELL/PUT (trade LOWER). The opposite is true when the KDJ is in the oversold zone. When the J-line is below the others, a BUY/CALL (trade HIGHER) could be a good idea.

Let's put it to the test now.

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As with any indicator, it's always a good idea to support the signals given by one with another (indicator). When trading with the KDJ for example, you could always get false signals. Double (or triple) check with something like the RSI or Stochastic.