Starting from Zero: Understanding the KD Indicator
Among technical tools in the stock market, the Stochastic Oscillator (KD) is a must-know for many investors. This indicator, introduced by George Lane in the United States in 1950, primarily helps you determine when a stock is overbought, oversold, and when to enter or exit a position.
Simply put, the KD indicator records the highs and lows of a stock's price over a certain period. Its values range from 0 to 100, assisting traders in identifying overbought or oversold market conditions.
The Two Main Components of the KD Indicator
The KD indicator consists of the K line (fast line) and the D line (slow line), which operate based on different logic:
The K line is more sensitive and reacts quickly, representing the current closing price's relative position within a specific price range over a certain period. The D line is more stable, being a 3-period simple moving average of the K line.