What is an Indicator? KDJ indicator?

What is an Indicator?

An indicator is data points that present the direction in which a currency will move. It is widely used by investors to optimize trading strategies. These indicators are used in time frames and currency pairs. The right combination of indicators can help you to build an effective and successful trading strategy in a vibrant and volatile currency market as well.

If you are reading this article to find an indicator that helps you get continuous profit in trade coins, then you are wrong. This article does not share with you any type of indicator for buying or selling points, but you will find more interesting things and a different perspective on how to use the indicator.

Trading work is a truly complicated, many new traders think that this job is so simple that you just need to search for trading signals with Indicator, and then you just press the button, that’s it. If trading was really that simple, there would not many traders who failed and got bankrupt continuously. One of the most reasons for the failure of traders is because they rely too much on indicators when trading.

what-are-indicators-and-kdj-indicators

The best indicator is not the indicator that will help you to maximize your profit or provide the most accurate trading signals. Such indicators are just cheap things and scams which are only profitable for those who sell it.

The best indicator must be the type of indicator that suits your purpose when trading, for example:

  • If you need to identify trends, the best indicator is the Moving Averages.
  • If you need to find signals showing the market is moving slowly and possibly reversing in the future, you should choose Momentum indicators.

And if you do not understand what the trend or the momentum of the market is, you should stop looking for the best indicator to trade. Let’s learn about technical analysis and basic knowledge before trying to apply indicators when trading.

Do you really know how to use an indicator?

Please stay away from the “arrow-shaped indicators” that notify you of points of sale, especially free goods. These indicators are harmful to beginner traders, you will be dependent and think that trading is an easy work (just look at the direction of the arrow, you will get profit). No matter what style of your trading, you should understand how the indicator works first.

You do not need to learn how to program an indicator, but you need to understand when they will appear on the price chart. Sometimes, the thing to do is to draw your hand following the formula of those indicators. For example, using the Moving Average is quite simple, you need to understand why many traders think that when the price closes below the Moving Average line is a signal of selling order.

Once you understand the nature of the indicator, it will be easier for you to detect noise signals, which is when the indicators notify the entry point but the fake signal. You can also compare which order is better (because not every entry points have high winning probability if only depending on the indicator).

When indicator works and when it fails?

The indicator can indicate a wrong entry point, which is completely normal because every tool has its own errors. We think it is very shortsighted if any trader believes that indicators are all phony, and uses price action as the only tool to trade.

An indicator is just a tool, and its quality is high or low depends on the user, even if your tool is ordinary. For example, if you understand Moving Averages are ineffective when trading in sideways markets, do not use it when prices move into that area; or do not use overbought/oversold signals of momentum indicators when you are trading against the trend.

what-are-indicators-and-kdj-indicators

In short, the best indicator is the one that is best suitable for your trading purpose. In other words, the indicator is the best when the trader knows how to use the indicator. By the way, you also need to learn about other types of indicators. The more you understand the features of each type of indicator, the more trading tools you have to add in your own system.

What is the KDJ indicator?

KDJ is an indicator only designed for the purpose of making trading as efficient as possible. It is perfect in identifying both trends and optimal entry points.

For investors who already know the basic technical analysis tools, KDJ can consider as the Alligator or the Stochastic Oscillator. Like those tools, it allows you to identify the direction and potential of trends and optimal entry points.

what-are-indicators-and-kdj-indicators

How does the KDJ indicator work?

KDJ was formed and developed based on the Stochastic Oscillator with the only difference of having an additional line called signal line “J”. The value of the signal lines %K (yellow) and %D (green) will be displayed if they reach the overbought (over 80) or oversold (below 20) rate. Line J (purple) represents the divergence of the value of 2 lines %D compared to %K. The value of J may exceed [0, 100].

what-are-indicators-and-kdj-indicators

When KDJ reaches or exceeds the trustworthy zones that are oversold (near 0) and overbought (100), it is the moment we should be in a position to enter the order (take profit or buy). The AD recommends that investors only join if the KDJ reaches these rates or exceeds them which indicates an imminent reversal.

KDJ is suitable and more accurate for short time frames such as m15 m30 h1 h4. With longer time frames, the waiting time for price changes will be longer and therefore, it is not suitable for short-term strategies.

So when we are going to prioritize orders: We should prioritize to enter orders when KDJ is in the overbought/oversold areas and when the three KDJ signal lines are about to come together – this is a burst area which often has a great price fluctuation. In addition, the moments when the J line (purple) seems to rise up or go down when it has reached to overrated areas.

Conclusion

For best results, KDJ can be combined with other indicators, such as the Average Directional Index (ADX) and the Average True Range (ATR).

Remember that there is no indicator is capable of providing 100% accurate signals, even the best indicators. Regardless of the indices you entrust, do not forget to follow the basic rules of risk management and the invested funds.

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