Lesson Six

Yibo says the crypto host provides valuable knowledge, keep it for later review

Hello everyone! Today, we’re not going to discuss those deep theories, but focus specifically on the very practical “KDJ Indicator” in cryptocurrency trading—basically, this tool helps us determine when to buy and when to sell, acting as a “market compass.” Whether you’re a beginner just starting out or a seasoned veteran, understanding how to use it can help you avoid many detours and lose less money!

First, let me ask: have you ever experienced this? Seeing the coin price keep rising, you couldn’t help but chase in, only to see it drop right after you buy; or watching the price fall sharply, panicking and selling, only for it to rebound right after? It’s not bad luck; mainly, it’s because you didn’t grasp the market’s “temperament”—and the KDJ indicator is a great tool to help us understand that temperament.

First, we need to understand what exactly KDJ is. It consists of three lines, easy to remember:

K line is the “impulsive” one, reacts quickly, moves first at the slightest market change, and is designed to catch short-term signals of rise and fall;

D line is the “slow” one, very stable, filters out market noise, and helps us see medium to long-term trends;

J line is the “warning” line, with the most volatile swings, can alert us to potential trend reversals in advance, but it can sometimes “cry wolf,” so it’s best to interpret it together with the K and D lines for reliability.

How do we use these three lines? The core is based on four key points, explained in plain language:

First is “overbought and oversold.” Simply put, the KDJ indicator has a range from 0-100, like a “market sentiment thermometer”: when K exceeds 80, it indicates the market is “crazy hot,” everyone is rushing to buy, and the price is likely to pull back—don’t chase high, consider reducing positions or staying on the sidelines; when D drops below 20, it shows the market is “cold,” no one wants to buy, and the price may bottom out and rebound—pay attention, look for low-entry opportunities, but don’t rush in, as it might still fall further.

Second is “Golden Cross and Dead Cross,” the most direct buy and sell signals: a Golden Cross occurs when K crosses above D from below, especially when both are below 20—that’s a “buy signal,” meaning the market is saying “time to buy cheap”; a Dead Cross is when K crosses below D from above, especially when both are above 80—that’s a “sell signal,” meaning “take profits and don’t be greedy.” But be cautious: if the cross occurs in the middle zone, the signal is less reliable and should be combined with other factors.

Third is “divergence,” which is key for predicting reversals. What is divergence? For example, if the price hits a new high but the KDJ doesn’t follow with a new high, that’s “top divergence,” indicating the upward momentum is weakening and a decline may follow; conversely, if the price hits a new low but the KDJ doesn’t follow with a new low, that’s “bottom divergence,” suggesting the downtrend is losing strength and an upward move could happen. This signal is more reliable than just Golden Cross or Dead Cross, especially on daily charts, so it’s important to pay attention.

Fourth is “J line alerts.” When J exceeds 100, it’s signaling “overbought, expect a pullback”; when J drops below 0, it’s indicating “oversold, possibly a rebound.” The steeper the J line rises, the stronger the trend; the steeper it falls, the more intense the decline—helping us judge trend strength.

Knowing these isn’t enough; we also need strategic application to avoid pitfalls:

First is “choosing the right cycle.” Short-term trading uses 15-minute or 1-hour charts, where KDJ reacts quickly to catch short-term swings; medium-term investments focus on daily or weekly charts, paying attention to KDJ’s movements in the middle zone for a more stable trend; long-term holding can set parameters more conservatively, like (21,7,7), focusing on how long J stays in extreme zones.

Next is “multi-timeframe resonance.” What does that mean? For example, if the 4-hour chart shows a Golden Cross and the daily chart shows bottom divergence, combining these signals greatly increases confidence—making entry decisions more assured. But don’t rely solely on small timeframe signals, as they can be noisy; always consider the overall trend direction on larger timeframes.

Another key point: don’t use KDJ alone! It’s like a “scout,” and needs to be paired with other “allies” to maximize its effectiveness. For example, combine it with MACD—one for short-term fluctuations, the other for medium to long-term trends; or with volume—when KDJ signals appear, if volume increases, the signal is more reliable, not a false alarm.

Now, a few pitfalls to watch out for, as many people fall into these traps:

First trap is “indicator lag.” KDJ is calculated based on past prices; prices move faster than the indicator, so sometimes the indicator shows a buy signal after the price has already risen—don’t impulsively trade just based on the indicator; always consider current market conditions.

Second trap is “failure in extreme conditions.” During sharp rises or falls, KDJ can stay in overbought or oversold zones for a long time. Don’t go against the trend—if it’s overbought and you keep trying to sell, or oversold and keep buying, you might end up losing more. Follow the trend.

Third trap is “small-cap coin traps.” Some low-market-cap coins are easily manipulated by big players, causing KDJ signals to be distorted. A golden cross might look good but could be a trap set by the main players to lure in buyers. Always check depth charts and order books to avoid being fooled by false signals.

Fourth trap is “psychological influence.” When KDJ signals appear, don’t let greed or fear cloud your judgment. Set stop-losses and take-profits as planned. Don’t think “it will go up a little more” or “it will drop further”—many lose money because of greed or panic.

Finally, here are some practical tips to remember: when overbought above 80, consider reducing positions; when oversold below 20, stay alert; buy on low KDJ crossovers, sell on high crossovers; watch for divergence signals—sell at top divergence, buy at bottom divergence; multi-timeframe resonance increases success rate; combine multiple indicators to avoid pitfalls.

Keep your position sizes reasonable, set proper stop-losses, and trade rationally—that’s the key.

Actually, KDJ isn’t hard to understand; its core purpose is to help us judge market heat and trend changes. We don’t need to memorize complex formulas—just remember “observe ranges, watch crossovers, monitor divergence, and combine signals.” Keep observing and verifying, and gradually develop a feel for it.

Finally, a reminder: the cryptocurrency market is highly volatile, and no indicator can be 100% accurate. KDJ is just an auxiliary tool, not a substitute for independent thinking. Always control risks, don’t invest all your assets at once, stay calm, and make rational decisions to succeed in the market.

Hope this sharing helps everyone. Wishing you smooth trading and more profits! Thank you all!