Steemit Crypto Academy – Season 3 - Week 8 - Post for @asaj

The Random Index (KDJ) indicator is basically a type of technical indicator that is a very popular indicator that signals the trend direction the market is moving and also indicate trend reversals and overbought and oversold areas. The Random Index (KDJ) indicator is very similar to the stochastic indicator as it was formed from the stochastic indicator, however, the KDJ indicator works differently with its own additional line. A lot of traders make use of the random index KDJ indicator to determine the market trend and also entry and entry positions so as to make the most profits.

The Random Index (KDJ) indicator is made up of three oscillating lines namely the K-line, the D-line and the J-line. The K-line represents the fast oscillating line and D-line represents the slow oscillating line and the J-line shows the divergence between the K-line and the D-line. In the KDJ indicator there are two horizontal lines that represents overbought and oversold zones. The main measurement areas of the KDJ indicator ranges from 20 - 80. When the indicator rise above 80, it shows that the market is in overbought and when it falls below 20, it shows that the market is in oversold. When the K-line intersects the D-line in the overbought zone it is an entry signal, and when the K-line intersects the D-line in the oversold zone, it is an exit signal.

Calculating KDJ

When calculating the KDJ indicator, the RSV value of the period would be first calculated, before proceeding to calculating the K, D and J value. The fomular is as follows;

Calculating the RSV

N-day RSV = (CN LN) divided by (HN LN) multiplied by 100

Number of periods = N
the Closing price on the Nth day = CN
the lowest price in N [days] = LN
the highest price in N [days] = HN

Calculating the K and D value

K value of the day = 2 / 3 × Previous day K value + 1 / 3 × RSV of the day

D value of the day = 2 / 3 × Previous day D value + 1 / 3 × K value of the day

J value = (3 multiplied by the K value of the day) subtracted by (2 multiplied by D value of the day)

Question 2 - Is the random index reliable?

In my opinion, the random index KDJ indicator is reliable because it gives a good representation of what is happening in the market in terms of trend direction and overbought and oversold. However, it is important to know that it can give a false signal that it why it is always important to combine the KDJ indicator along with other indicators for signal confirmation before making decisions.

To demonstrate the reliability of the KDJ indicator, I will be using it on the AAVE/USDT chart. On the chart, we can see that the KDJ signals matches with the price actions on the candlesticks. The black J-line crossed below the K-line and D-line which was an indication of a downward trend. The indicator also indicated an uptrend when the black J-line intersected and crossed above the K-line and D-line. The intersection is a good reversal signal which becomes an entry signal.

AAVE/USDT Chart

Question 3 - How is the random index added to a chart and what are the recommended parameters?

The process of adding the random index KDJ indicator on a cryptocurrency price chart is a straighttforward when using the tradingview platform.

• To do this, I will visit the tradingview website https://www.tradingview.com. On the indicator tab located at the top, click on it to pop up the indicator search library

• On the input, Search for vortex for the keyword KDJ. Tradingview would automatically populate the search result with indicators that are relevant to the the name. This is a great way to find indicators with the keyword.

• Select the first one written KDJ

KDJ indicator on the AAVE/USDT Chart

• In the KDJ indicator area, click on the settings icon

• The KDJ indicator has 3 main sections; input section, styles section and visibility section.

• Input - On the input section, there are 2 main parameters that can be changed. The number of periods and signal. The number of periods and the signal can be changed depending on the needs of the analysis. By default, the periods is set at 9 and the signal is set at 3. To reset the input settings, click on the dropdown at the bottom select set to default.

• Styles - On the styles section, it has all the settings to adjust the visual look of the indicator components such as the oscillating lines, the background colour, the overbought and oversold lines. The main elements that can be changes are the colours and thickness of the lines. These styles sections are just for personal visual preferences.

• Visibility - On the visibility section, the different elements can be turned on and off depending on the situation.

The recommended parameters are;

For the number of periods - 9 is the recommended parameter and it has proven to be the ideal period. On the indicator 9 is already set by default which means that it does not need to be changed except for specific situations.

For the overbought level - 80 is the level that is recommended. When the lines is above 80, it indicates overbought.

For the oversold level - 20 is the level that is recommended. When the lines is below 20, it indicates oversold.

For the styles - The styles are set properly by default with the right colours and thickness, which means that it does not need to be changed. However, depending on the needs, the styles can be changed at any time.

Question 4 - Differences between KDJ, ADX, and ATR

KDJ - Random Index
ADX - Average Directional Index
ATR - Average True Range

• KDJ - The KDJ indicator is made up of three oscillating lines; the K-line, the D-line and the J-line. While the ADX indicator is made up of only one oscillating line. While the ATR indicator is made up of only one oscillating line.

• The KDJ indicator is made up of three oscillating lines; the K-line, the D-line and the J-line. While the ADX indicator is made up of only one oscillating line. While the ATR indicator is made up of only one oscillating line.

• The KDJ indicator is beneficial for identifying market trend direction and reversal. While the ADX indicator is beneficial for measuring the strength of a trend. While the ATR indicator is beneficial for measuring price volatility.

• The KDJ indicator is great for shorter timeframe analysis. While the ADX indicator is great for mid-term and long-term timeframe analysis. While the ATR indicator is great for mid-term and long-term timeframe frame analysis.

• The default period for the KDJ indicator is 9. While the default period for the ADX indicator is 14. While the default period for the ATR indicator is 14.

• The KDJ indicator can be used to identify signal for entry and exit points by itself. While the ADX indicator needs the combination of the DI to be able to identify entry and exit points. While the ATR indicator also needs the combination of the DI to be able to identify entry and exit points.

Question 5 - Use the signals of the random index to buy and sell any two cryptocurrencies

Buy – FIL/USDT

On the FIL/USDT chart, the J-line was moving above the K-line and D-line which for me was a good indication to go long. The oscillating lines were moving closer to the overbought zone which for me shows that there is a strong buying pressure at that moment. I entered the market at 74.4135 USDT and using the 1:1 risk-reward, I set my take profit at 76.4560 USDT and my stoploss at 72.4560 USDT.

Buy – SOL/USDT

On the SOL/USDT chart, I was able to spot that the J-line was about to cross above the K-line and D-line which for me was a good buy signal and I went long. The oscillating lines were close to the 30 level after coming from an oversold level below the 20 level, which for me showed that there is still a lot of buying pressure at that moment. I entered the market at 74.078 USDT and using the 1:1 risk-reward, I set my take profit at 79.098 USDT and my stoploss at 69.098 USDT.

Sell – MATIC/USDT

Using the KDJ indicator to identify a sell signal on the MATIC/USDT chart, the J-line was still below the K-line and D-line which for me was a good indication to go short because it means that there isn’t any strong reversal signal yet. I entered the market at 1.62714 USDT and using the 1:1 risk-reward, I set my take profit at 1.54664 USDT and my stoploss at 1.70745 USDT.

Sell – AAVE/USDT

Using the KDJ indicator to identify a sell signal on the AAVE/USDT chart, using the same strategy, I followed the signal from the oscillating line on the KDJ indicator. The J-line was still moving down below the K-line and D-line which for me was a good signal to sell. Also, using the 1:1 risk-reward ratio, I entered the market at 403.33 USDT, I set my take profit at 383.45 USDT and my stoploss at 423.41 USDT.

Conclusion

Technical Indicators like the random index KDJ indicator has proven to be a very powerful and reliable indicator when combined with other technical indicators. The random index KDJ indicator can help trader identify the trend the market is moving and not only that, it can help spot trend reversals, and with this, a lot of traders make use of the indicator for buy and sell signals which is one of the strengths of the random index KDJ indicator. However, it is good to know that there isn’t any indicator that is 100 percent accurate which means that there is still room for false signals to appear. That is why it is advisable to always trade with caution when using any technical indicator signal, and also, always combine the KDJ indicator with another indicator for signal confirmation. Above all, the random index KDJ indicator is a really good indicator that when used correctly can help spot good entry and exit points to make more profits.