Investors are often overwhelmed by a dizzying array of technical indicators when analyzing charts. Today, we will discuss a timeless tool—the Stochastic Oscillator, also known as the KD indicator. This indicator is widely used because it helps traders accomplish three key tasks: accurately timing entries and exits, capturing price reversal points, and assessing whether the market is overbought or oversold.
Core Logic of the KD Indicator
What exactly does the KD indicator do?
Simply put, the KD indicator was developed in 1950 by American analyst George Lane. Its purpose is to track changes in market momentum and trend reversals. The values range from 0 to 100, representing the current stock price's relative position within a specific time period. In other words, the KD indicator answers the question: "Compared to a past period, where is the current stock price in its price range?"