The KD indicator (Stochastic Oscillator), developed by George Lane in the 1950s, is one of the most popular technical indicators among retail traders. It measures the relative position of the current price within a recent price range to identify overbought and oversold market conditions.
The KD indicator consists of two lines: the K line (fast line) and the D line (slow line, a moving average of K).
When both K and D exceed 80, the market is overbought. Watch for pullback risk, but strong stocks can stay overbought for extended periods.
When both K and D fall below 20, the market is oversold. A potential rebound opportunity, though weak stocks may stay oversold.
K crosses above D from below — a buy signal. Most reliable when occurring in the low zone (KD < 30).
K crosses below D from above — a sell signal. High-zone death crosses (KD > 70) are most reliable.
9-period KD is standard. Short-term traders may use 5-period for faster response; medium-term investors can add weekly KD confirmation.
Not necessarily. Strong stocks in bull markets can stay overbought. Wait for a death cross or other exit signal.
Set a stop-loss at the low of the entry day and execute it strictly. Failed crosses usually happen in weak market conditions.