Basic application of KD indicator
Although the %K and %D are theoretically developing in the same direction, the fluctuation of the %K will be larger than %D. Therefore, when %K cross with %D, there will be a clearer buy or sell signal.
When the K-line (blue) crosses the D-line (red) upward, it is a golden cross, and the trend is bullish, suitable for buying long orders and short selling orders
When the K line (blue) crosses the D line (red) downward, it is a death cross, and the trend is bearish, suitable for selling long orders and buying short orders
When the KD line is above 80, it is a signal of overheating buying, and the price may start to weaken, suitable for selling long orders and buying short orders
When the KD line is below 20, it is a signal of overheating selling, and the price may start to strengthen, suitable for long buy orders and short sell orders
Advanced application of KD indicator
Although the KD indicator is simple to use, there are still caveats. Here are some exceptions for you.
Passivation of indicators
Although the KD line is above 80, the indicator remains above 80 for a long time because the price is too strong. The price will keep rising, suitable for buying long orders and selling short orders.
Although the KD line is below 20, the indicator remains below 20 for a long time because the price is too weak. The price will keep falling, suitable for buying long orders and buying short orders
So how to determine whether the current indicator is passivating or overheating?
Since passivation is a condition that occurs after the indicator is overheated and maintained for a long time. So, it can be determine by the candlestick chart and duration of a longer time interval
- For example, in the 4Hrs range, if the indicator overheats for more than 1 day, it may be passivated. Investors are recommended to refer to the short-term and long-term charts at the same time when analyzing the market, which will make the analysis results more accurate.
- Most of the time, the market will still be affected by market news and will not follow the established pattern.
- Investors can match other technical indicators to improve trading winning rate
- The most important for investment is set ready the profit and stop loss before entering the market
- Once the stop loss is broken, you must keep your promise and leave the market to protect your capital
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Disclaimer: Information above can only be use for references and doesn’t represent our platform’s opinions.