Amibroker afl kdj indicator

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Amibroker afl kdj indicatorAmibroker AFL KDJ Indicator

Amibroker AFL KDJ Indicator

Amibroker AFL KDJ Indicator Stochastic Oscillator is a momentum indicator that measures relationship of close with high low range over defined number of days. KDJ indicator is an extension of Stochastic oscillator. KDJ has been developed from Stochastic Oscillator and includes one more J line along with the traditional D and K lines. Along with D K, J line assists traders in identifying overbought and oversold markets. KDJ indicator can be used for devising trading strategies. Either a trader can buy when all lines (K, D,J) are below 20 and sell above 80 or a trader can use J line to construct a momentum based technique. Trading strategy using this indicator will be explained later. KDJ is better than stochastic in identifying overbought and oversold levels but it is mainly useful for identifying swing moves and not short term moves.

Amibroker AFL KDJ Indicator Construction of KDJ

Construction of KDJ indicator is fairly simple. To understand the KDJ indicator, it is first necessary to understand the construction of stochastic indicator. Stochastic indicator consists of K and D lines which move between 0 and 100. K line in the stochastic indicator is,

K = ((Current Close Lowest Low) / (Highest high Lowest low))* 100

Lowest low and Highest high in this case is the low and high over the look back period defined by a trader.

D line in the stochastic indicator is simple moving average of the K line. Usually D is 3 day simple moving average of K line but it depends on what trader wants to choose. We have used exponential average.

D = N day simple moving average of K line where N is usually 3 or a value decided by the trader.

Now that construction of Stochastic indicator is over, it is time to introduce the J line. J line in the KDJ indicator is nothing but the divergence of D value from the K value. Formula to calculate the J line is,

J = (3*D) (2*K)

In the J line, weightage of D is more when compared with weightage of K. D line is clearly more important as it is the moving average of the K (fastest) line. In the KDJ indicator, K is the fastest line and J is the slowest line.

In the next post well show how to use this indicator in developing a viable trading strategy.

Amibroker AFL KDJ Indicator