Blockchain and Cryptocurrency Advanced - Random Index and How It Is Calculated
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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)
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