Crypto Academy Season 3 Week 8 I Homework Post for @asaj I Crypto Assets and the Random Index KDJ

Greeting everyone. I welcome you all in my homework. This week lecture is about the random index. I read the lecture of professor @asaj and writing the lecture after completing my research work.

Source

1.) In your own words define the random index and explain how it is calculated

Multiple indicators are used to predict the market future. People use them to get to know where the market will move next. After getting information about market future, the investors decide whether to invest or withdraw the assets from market.

The KDJ indicator which is also known as Random Indicator, is a trend following indicator. This technical indicator is not as much used as Stochastic, MACD. This indicator help the investor to indicate the selling or buying spots in market at a certain period of time.

This indicator is similar to Stochastic indicator. In stochastic indicator, we saw there were two lines in chart after applying the indicator; K line and D line. But when you apply the KDJ indicator, three lines will be there on chart. With K and D, there will be a J line.

It is also simple to use but more efficient. This help you to indicate about the market direction. You get about the selling or buying points. If market is in uptrend, it is the best time to sell the invested assets and if market is downtrend, then we should buy the coins at low price.

This also work same as Stochastic indicator. Here the range is between 0-100. Zero point show the lowest price. This is the best point to buy the coin. Because the price is low and market is at downtrend(oversold region). But 100 point show the highest price of coin. Market is at uptrend(overbought region) at this time and this is best spot to sell your assets.

The calculation of Random index is not so easy for the beginners. It require much time to understand its calculation.

There are three lines in Random index; K, D and J line. We need o calculate the value of these three lines. For calculation we first need to know about the closing price, highest price and lowest price of a coin with specified period of time.

But before that, we calculate the RSV value which is known as Immature Random Index Value.

RSV of the day = (CN - LN) / (HN - LN) X 100

The above is the formula for calculating the RSV. Here the

CN= Closing value of a specific day
LN= Lowest Value of a specific day
HN= Highest value of a specific day

Below is the formula for calculating the K value.

K value of the day=( 2/3 x previous day K value)+ (1/3 X RSV of the day)

Below is the formula for calculating the D value

D value of the day=(2/3 x previous day D value)+ (1/ 3 X K value of the day)

Below is the formula for calculating the J value

J value=( 3 x day K value)- (2 x da D value)

2.) Is the random index reliable? Explain

There is no indicator which produce the 100% accurate result. There always some week points in every indicator. So KDJ is also not a 100 reliable indicator. The people use this to predict the market direction and to get information about buying or selling points. You can also get information when the trend will change. But it also give false result sometime.

So we should use this indicator by combining it with other indicators. Combining the KDJ with ADX produce more accurate result as compare to KDJ alone. KDJ alone work best where the volatility is high and price of asset change with great volatility. In such market the KDJ show the much better performance as compare to the markets where the volatility is not high.

Before entering or exiting the market, we should use the other indicators too for confirmation of market direction, selling and buying spots. The combination of other indicators with KDJ will produce best result as compare to KDJ alone.

3.) How is the random index added to a chart and what are the recommended parameters? (Screenshot required)

Log in to the Tradingview.com

Click on Chart

Click on the fx which i have marked in above screen short

A search bar will open. Type the KDJ indicator and click on it. The KDJ indicator will apply on your chart

There is range of 0-100 in KDJ indicator. The over bough situation occur when the J line in chart move above to the 80 point. After crossing the 80 range, the market enter into the overbought region. This is the best point to sell your assets. The price is high here. You will get good profit by exiting the market at this point.

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When the J line cross the 20 and move below, it is known as the oversold region. After moving below to 20 point, the market enter into the oversold signal which is best for the investors to enter into the market because the price is low here and supply is high. So it is best sopt to buy the coins at low price.

When the demand decrease, the supply of coin is increase. This cause a decrement in price of coin. When the lines in KDJ intersect with each other, its mean that trend is going to change. In the below screen short, we can see that the lines intersect and start moving downward. There was a downtrend in market and it is the best spot for the traders to invest into the coins. At this point the price of coin is low nd best entry spot.

When the demand increase, the supply of coin is decrease. This cause an increment in price of coin. When the KDJ lines intersect with each other, then the trend reversal occur. In below screen short, we can see that the lines intersect and the start moving upward. The uptrend start. The uptrend is a good spot for traders to sell their coins. The price is high here and selling coins will be beneficial for the traders. So it is a sell signal.

You can change the indicator setting by clicking on the setting icon. Click on the Setting icon and a new page will be open. The first option is changing the Period and signal. By default the value is 9 and 3 respectively but you can change it.

Next is style. You can change the style according to you. You can set the colors of your own choice.

Next is the Visibility. Here you can also make changes according to your own choice or need.

4.) Differences between KDJ, ADX, and ATR

KDJ is a technical indicator. The investors use it to determine the trend in market. This help you to get information about overbought and oversold region. The range in KDJ is between 0-100. If the Value of K is above the 80, it give you a sell signal. This is the overbought region. The investors get this spot an good point to sell their coins. Selling their coins at this point give them a profit.

But When the value of K is less than 20, its mean that the market is at its downtrend. It is the oversold region and the best point to enter into the market. The price is low here so the investors take this a good opportunity to invest into the coins. But the KDJ alone do not give you the appropriate result. You should you this by combining with other technical indicators.

This indicator is use to determine how strong the trend is. Trend can be up or down. This indicator show the strength of the market ongoing trend. There is a single line when you apply the ADX indicator on chart. You do not get to know where the market is gong or what is direction of asset's price.

There is also a range between 0-100. By applying this indicator on the chart, if the point is below 20, it mean trend is week.

ADX value between 0-25 = Trend is week
ADX value between 25-50 = Trend is strong
ADX value between 50-75 = Trend is very strong
ADX value between 75-100 = Trend is super strong

This indicator is use to get information about how volatile the asset is within specific time duration. This indicator show the volatility of asset within specific time frame. It is also a single line when you apply ATR on chart. The highest and lowest price is use to measure the volatility of market in ATR indicator.

This indicator does not help your to know where the market is going. What the direction of market or how strong or week the trend is. You get to know how much volatile the market is by apply the ATR on chart.

Use the signals of the random index to buy and sell any two cryptocurrencies. (Screenshot required)

Buying and selling the AAPL

We can see in the above screen short that the J line is below the 20. This is the best time to enter into the market. The price is low here so i will place an order at this spot. The lines cross each other. Its mean trend is about to change. After intersecting, the market move will upward or downward. The market is at its downtrend and price was low so i entered into the market.

In the above screen short, when the KDJ value was above then 80 points, i sold my invest coins. The KDJ above or equal to 80 points indicate that the market is at its uptrend. It is best spot to leave the market.

Buying and selling the TRX

We can see in the above screen short that the J line is almost at the 20. This is the best time to enter into the market. The price is low here so i will place an order at this spot. The J line is moving upward.

In the above screen short, when the KDJ value was at 62 points, i sold my invest coins. I bought the coins at low price and sold when the market price is high comparatively. So i have profit.

Conclusion

The KDJ is a technical indicator which we use to predict what will be next move of market. It help us to identify the overbought and oversold point. We get an idea about the entry and exit spots. It give you more accurate results when we use it by combining with other indicators.

In case of flat market where the volatility is low, this indicator may produce the wrong result. It give you the most appropriate results in case of high volatility. Thanks to professor @asaj

Regard
@farooq2923