## Can the KD value really be used? Traders' most authentic insights

Many newcomers to the stock market, upon opening their trading software for the first time and seeing a bunch of technical indicators, might feel overwhelmed. Among them, the KD indicator (Stochastic Oscillator) is a tool that many beginners encounter. It claims to help catch bottoms and tops, identify turning points, and judge overbought or oversold conditions—sounds very versatile. But is it really that powerful?

## What exactly is the KD indicator

**KD value** is short for "Stochastic Oscillator," invented by American George Lane in the 1950s. Essentially, it records the relative position of the stock price within a certain period. Put simply, it shows where the current price stands compared to the recent high and low points—whether it's strong or weak.

The KD indicator consists of two lines: **K line (fast line)** reacts quickly, while **D line (slow line)** reacts more slowly. When the K line crosses above the D line, it's called a **Golden Cross**—a buy signal; conversely, when the K line crosses below the D line, it's called a **Death Cross**—a sell signal.

The KD value ranges from 0 to 100:
- **KD > 80** indicates strong price momentum, but also a potential overbought condition, with a 95% probability of a downward correction.
- **KD < 20** suggests weak price momentum, with frequent oversold conditions and a 95% chance of an upward move.
- **KD around 50** indicates a balance between bulls and bears, suitable for observation or range trading.

## How to use KD values to make money? This is what traders truly care about

Many traders, after learning about the KD indicator, find that following textbook methods often results in getting caught in traps. Why? Because the KD has several frustrating flaws.

**The first issue is dulling**. Imagine the stock price keeps rising, and the KD value stays long-term between 80-100. According to the rules, you should have sold already, but if you did, and the price continues to rise afterward, you miss out on big gains. This is high-level dulling. Conversely, there's also low-level dulling—if the K value hovers in the 0-20 range for a long time, you might want to buy the dip but keep waiting for a rebound that never comes.

**The second issue is too many signals**. Setting the KD parameters too sensitively (like using a 5-day or 9-day cycle) produces a lot of noise, leading to multiple signals in a single day, making it hard to decide which to follow.

**The third issue is divergence**. This is critical—sometimes, the stock price is rising, but the KD value starts falling, called "positive divergence" or "top divergence," warning of a potential reversal downward. Conversely, when the price is falling but the KD starts rising, called "negative divergence" or "bottom divergence," signaling a possible rebound. But divergence isn't 100% accurate and should be used with other indicators for confirmation.

## How to adjust KD parameters reasonably?

The standard setting is a 9-day cycle, but this number can be adjusted:

- **For short-term trading?** Use 5-day or 9-day KD; the indicator becomes more sensitive and reacts faster, but also produces more noise.
- **For medium to long-term trading?** Use 14-day, 20-day, or even 30-day cycles; this smooths the KD and reduces sensitivity to market fluctuations.

The key is to align the parameters with your trading timeframe. There’s no perfect setting—only the one that suits you best.

## A few more things to know about using the KD indicator

Ultimately, the KD indicator is a **lagging indicator**; it is based on historical data and cannot predict future movements. So, treat it as a risk warning tool rather than a crystal ball. Don't overhype its capabilities.

Many traders make the mistake of relying solely on the KD value and ignoring fundamental analysis. If you see a prolonged overbought condition (KD > 80 for a long time) and positive news emerges, you might want to hold on; conversely, if negative news appears, consider partial or full profit-taking. After all, in the stock market, **staying alive and making money is the real goal**.

Top traders combine the KD indicator with other technical tools (like moving averages, volume) and fundamental analysis for a comprehensive approach. Relying on just one KD value for decision-making is too risky.

## Final advice

The KD value is a decent beginner’s tool that can help you initially gauge whether the market is overheated or too cold. But technical indicators are never foolproof, especially since KD has drawbacks like dulling, frequent signals, and divergence inaccuracies. Use it as a reference, not an absolute rule, and combine it with other analysis methods to gradually improve your trading success rate.