Stocks, futures, and crypto markets, the KD indicator is one of the most popular technical tools. Many traders use it to determine entry points and capture price reversals, but do you really understand the logic behind KD? Today, we will take an in-depth look at this indicator.
What is the KD indicator? Explained in one sentence
The KD indicator (Stochastic Oscillator) was created by American analyst George Lane in the 1950s. Its core purpose is to capture market momentum changes and trend reversals. In simple terms, it records the high and low volatility of a stock price over a period and uses a 0-100 scale to represent the current closing price's relative position within that cycle.
The KD indicator consists of two lines:
- K line (%K fast line): reacts quickly, representing the current closing price's relative strength or weakness within a specific period (e.g., 14 days)
- D line (%D slow line):