Blending MACD and KDJ
MACD Indicator
The Moving Average Convergence Divergence (MACD) indicator or oscillator is a popular indicator for identifying trends and reversals. The idea is that, once the indicator has signaled a significant change in market behaviour, turning from bullish to bearish for example or vice versa, you have a potential entry or exit point.
The MACD is all about the convergence and divergence of the two moving averages. Convergence occurs when the moving averages move towards each other. Divergence occurs when the moving averages move away from each other. The shorter EMA12 is faster and responsible for most MACD movements. The longer EMA26 is slower and less reactive to price changes in the stock.
Signal line crossovers are the most common MACD signals. A bullish crossover occurs when the MACD turns up and crosses above the signal line. A bearish crossover occurs when the MACD turns down and crosses below the signal line.
The MACD trading strategy involves using the crossing of the signal line as your entry or exit point for a trade.
The MACD line oscillates above and below the zero line (centreline). These crossovers signal that the EMA12 has crossed the EMA26. Positive MACD indicates that the EMA12 is above the EMA26. Positive values increase as the EMA12 diverges further from the longer EMA. This means upside momentum is increasing. Negative MACD values indicate the EMA12 is below the EMA26. Negative values increase as the shorter EMA diverges further below the longer EMA. This means downside momentum is increasing.
The MACD indicator is useful in that it brings together momentum and trend in one indicator.
KDJ indicator
The KDJ indicator, also known as the Stochastic Oscillator, is a popular technical analysis tool to identify potential reversals and overbought/oversold conditions in markets.
It is based on the concept of momentum and is often used in conjunction with other indicators to make informed trading decisions.
The KDJ indicator consists of 3 components: %K, %D, and the J line.
The %K line fluctuates between 0 and 100, where values near 0 indicate that the closing price is close to the lowest low, and values near 100 indicate that the closing price is close to the highest high.
The %D line is a moving average of the %K line and helps smooth out the fluctuations.
The J line provides additional information about the divergence between the %K and %D lines. The J line oscillates between -100 and +100, where values above +100 indicate overbought conditions, and values below -100 indicate oversold conditions.
When the %K line or the J line rises above the +80 level, it suggests that the stock is overbought, indicating a potential downward price reversal. Conversely, when the %K line or the J line drops below the +20 level, it indicates oversold conditions and a potential upward price reversal.
Traders also look for divergences between the price action and the KDJ indicator. For example, if the price is making higher highs while the %K line is making lower highs, it could signal a potential trend reversal.
A bullish crossover occurs when the %K line crosses above the %D line, suggesting a potential buying opportunity. Conversely, a bearish crossover occurs when the %K line crosses below the %D line, indicating a potential selling opportunity.
Combining MACD and KDJ Indicators
Volatility in a stock can increase the number of MACD crossovers and false signals can be produced. To reduce them, use the MACD with other indicators such as the KDJ.
In Jan 2024, $Jardine C&C(C07.SG$ reached 30.10. The J line was above 100 which indicated it was overbought. About 2 weeks later, there were bearish crossovers in the KDJ and MACD. The trend reversed to down and a sell signal was generated.
In Mar 2024, $Jardine C&C(C07.SG$ reached 23.76. The J line was below 20 which indicated it was oversold. There was a bullish crossover in the KDJ. The trend reversed to up and was confirmed by the buliish MACD crossover. A buy signal was generated.
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LEng LEng : Thanks for sharing, @bullrider_21
bullrider_21OP LEng LEng: Glad to share.
Tonyco : Not sure why this is in ETH.. crypto doesn't follow technicals. It only follows BTC until it is useful by itself. Monero for example, because it is used by dark net for it's security and anonymity.
bullrider_21OP Tonyco: Technical analysis can be used for stocks, forex, crypto including ether. Not sure why. I didn't include the ticker.
Trytosaveabit : Nicely done! This has to be one of the most thoroughly explained, and easy for anyone to understand what they show/indicate. But also easily grasp the concept of how they are meant to be used, that I’ve seen! My hat is of to you sir. Again very nicely written!
bullrider_21OP Trytosaveabit: Thank you. I try to be thorough yet concise.
Trytosaveabit bullrider_21OP: You’re welcome! And I greatly appreciate reading accurate, concise information! And that’s exactly what you have done here!
bullrider_21OP Trytosaveabit: Thanks for your appreciation! This encourages me to continue writing in this manner.