KDJ Indicator

Parameters: k_period = 9 (2–200) • d_period = 3 (1–200) • j_period = 3 (1–50)

Overview

The KDJ Indicator is a sophisticated momentum oscillator particularly popular in Chinese and Asian financial markets. It builds upon the traditional Stochastic Oscillator by adding a third line - the J line - which amplifies the divergence between the K and D lines to provide earlier and more sensitive trading signals. The J line is calculated using the formula J = 3K - 2D, which mathematically emphasizes the momentum and divergence of the K line from its signal line D.

This amplification creates a leading indicator that can identify overbought/oversold conditions and potential reversals before they appear on traditional stochastic indicators. Unlike K and D lines which are bounded between 0 and 100, the J line can exceed these boundaries, often reaching values below 0 or above 100 during extreme market conditions. These extreme readings are particularly valuable as they often precede significant reversals. The KDJ is most effective in volatile markets where early signal detection provides a trading edge, and its popularity in Asian markets stems from its ability to capture short-term momentum shifts that are common in these dynamic trading environments.

Interpretation & Trading Signals

Indicator Components:

  • K Line (Blue): The fast stochastic line, showing raw momentum (0-100)
  • D Line (Red): The signal line, a moving average of K (0-100)
  • J Line (Green): The emphasis line, calculated as 3K - 2D (unbounded)
  • Range: K and D range 0-100, J can exceed these bounds

Trading Signals:

  • J > 100: Extreme overbought condition, potential reversal
  • J < 0: Extreme oversold condition, potential bounce
  • K Crosses Above D: Bullish signal, especially below 20
  • K Crosses Below D: Bearish signal, especially above 80

Advanced Strategies:

  • J Line Reversals: Early warning of momentum shifts
  • Triple Confirmation: All three lines in agreement = strong signal
  • J Line Divergence: When J diverges from price, expect reversals
  • Extreme Trading: Use J extremes (beyond 0/100) for high-probability trades

Example Usage

Code examples will be available once the Rust implementation is complete.

Performance Analysis

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