The KDJ indicator is a commonly used technical indicator for analyzing market trends. Its advantage is that it is sensitive to changes in the future direction of prices, especially in weekly and daily charts, which often provide clear entry and exit timing. Generally speaking, a gold cross means buying, while a death cross means selling.
But no indicator is omnipotent. On the other hand, the sensitivity of the KDJ index is also its shortcoming. The signal of golden crossover often leads investors to buy too early and get trapped, while the signal of death crossover leads investors to sell too early and get short. These two phenomena are commonly referred to as low-level passivation and high-level passivation of the KDJ index. Understanding the passivation phenomenon of KDJ indicators is crucial for the volatile futures market.
To use the KDJ indicator correctly, the condition that needs to be met is that the futures price moves within a box shape with a certain amplitude. In this case, cross buying at low levels of gold and cross selling at high levels of death are relatively more accurate.
When the KDJ index becomes passive, the following method can be used to identify it:
1. Magnification method.
Due to the sensitivity of KDJ indicators, they often provide mixed signals that can easily mislead investors into believing that they are generating purchase or shipment signals, leading to operational errors. If we amplify the signal by one level to confirm its reliability, it will have a better effect. If a low-level golden cross of the KDJ indicator appears on the daily candlestick chart, it can be magnified and viewed on the weekly chart. If a golden cross also appears at a low level on the weekly chart, it will be considered a reliable signal and can be boldly manipulated. If the weekly chart shows a downward trend, then the reliability of the gold crossover on the daily chart is not strong, and it may be the main force's deceptive line strategy. At this time, a wait-and-see approach can be adopted.
2. Morphological method.
Due to the sensitivity of the KDJ indicator, the indicators it provides often lead the way. Therefore, observing the shape of the KDJ indicator can help identify the correct buying and selling points. When the KDJ indicator forms a W-bottom, triple bottom, and head shoulder bottom at a low level, it can be restocked; In strong markets, when the KDJ indicator forms an M-head and head shoulder top at a high level, the reliability of the shipment signal will be strengthened. It should be noted that KDJ, like RSI, forms a high accuracy backpressure line after oscillation.
3. Numerical Wave Method.
The combination of KDJ index and numerical waves is a very effective method. On the K-line chart, it is often possible to clearly distinguish the rising patterns of one wave, three waves, and five waves. On the K-line chart, the bottom of the futures market ends and begins to rise. Often, during the first sub wave of the rise, the KDJ indicator sends out a death cross selling signal. At this time, it is advisable to consider less about this selling signal, as it is likely to be an incorrect signal or a false signal. When the current price reaches the third sub wave, increase the importance of short selling signals. When the current price reaches the obvious fifth sub wave, if the KDJ indicator gives a sell signal, we will resolutely sell. At this point, the signal given by the KDJ indicator is usually a very accurate signal. When the current price has just ended its rise and started to fall, the buying signal of the KDJ indicator should be considered less in the first sub wave of the decline. Only when the current price has fallen by the third or fifth sub wave, should the buying signal of the KDJ indicator be considered, especially after the fifth sub wave of the decline. The buying signal given by the KDJ indicator is more accurate.
4. Trend line method.
When the futures price enters an extremely strong or weak market, it will form a unilateral upward trend and a unilateral downward trend; In a unilateral downward trend, to effectively solve the problem of KDJ passivation, a downward trend line can be added to the K-line chart. Before the futures price breaks the downward trend line, any buying signal issued by KDJ will not be considered. Only after the current price breaks the downward trend line, can the buying signal of KDJ indicator be considered; In a unilateral upward trend, the market trend is extremely strong, and the futures price often sends out a sell signal at a high level. According to this signal, the operator will lose a large segment of the market. Alternatively, an upward trend line can be added to the daily K-line. Before the futures price breaks the upward trend line, the sell signal given by the KDJ indicator will not be considered. Once the current price breaks the upward trend line, the sell signal given by KDJ will be resolutely executed without any hesitation. The failure of KDJ indicators often occurs in extremely strong or weak markets, as well as in one-sided upward and downward trends. At this point, KDJ is bound to experience both high-level and low-level passivation. If gold cross purchases and death cross shipments are still followed, the market will just start, and the KDJ indicator has already sent a sell signal at a high level. If the signal is followed, a main uptrend will be lost; The market has just fallen, and KDJ has issued a golden cross at a low level. If the purchase is made, it will be trapped and the price loss will be very large, because the KDJ indicator can be passivated at a low level and then passivated again, causing the futures price to continue to fall, thus causing misunderstandings for investors.
