In this lesson
- compute the stochastic %K step by step
- find out how Binance's KDJ 9, 3, 3 is made from it and what the J line is
- see in August 2024 that an oversold market can keep falling
Picture a lift in a shaft. The ground floor is the lowest price of the last 14 candles, the roof the highest. The stochastic oscillator asks only one thing: on which floor did the price close today? On the roof it is 100, on the ground floor 0. Professor Wick likes riding the lift – he just does not know where it goes tomorrow.
How %K is computed#
- Find the highest high and the lowest low of the last 14 candles.
- %K = (close − low) / (high − low) × 100.
- The %D line is the average of the last 3 %K values – calmer and a little behind.
Above 80 the close is near the top of the range, below 20 near the bottom. Walk through the calculation – the green and red dashed lines show the window's high and low:
Stochastic %K 14 in the panel, lines at 80 and 20. Dashed: the high (green) and low (red) of the highlighted candles.
Jul 28, 2024: over the last 14 candles the high was 69,399.99 and the low 60,632.3. The close 68,249.88 sits at 86.9% of that range – (close − low) / (high − low) × 100.
KDJ: the stochastic with a third line#
In Binance's Original-mode menu you will not find a plain stochastic – there is its relative KDJ with the setting 9, 3, 3. It computes the same "position in the range" from 9 candles, but smooths it by thirds:
- K = two thirds of the previous K + a third of the new position in the range (it starts at 50),
- D = the same smoothing, this time of K,
- J = 3 × K − 2 × D – it runs ahead of the others and can shoot above 100 or below 0.
On the 2023–2024 Bitcoin chart the J line was above 100 on 39 days and below zero on 11 days. That is not a calculation error, that is J.
On Binance you switch it on in Original mode: the indicator icon, the Sub Indicator tab, tick KDJ, Save.
The stochastic and KDJ side by side:
- Stochastic 14, 1, 3 (panel below the chart: %K in blue, %D in yellow, lines at 20 and 80)
- KDJ 9, 3, 3 (panel below the chart: K in blue, D in yellow, J in purple, lines at 20 and 80)
The period#
A shorter window = a range of a few candles that changes quickly, and the line jumps from edge to edge:
The line entered the overbought or oversold zone 56×. The common default setting – try moving the slider both ways.
Oversold can get more oversold#
On 2 August 2024 %K fell from 39 to 3 – the close of 61,498 was almost at the bottom of the two-week range. "Oversold, buy"? Three days later the price was down at 49,000. The bottom of the range simply moved lower.
Click the candle on which the stochastic %K fell below 20.
No candle picked yet.
A position in the range is not a floor
The stochastic shows the position against past candles. When the market breaks down, the new low creates a new range, and an "oversold" oscillator can stay down for days. Buying just because it is below 20 is catching a falling knife.
Common myths#
- "%K below 20 = the bottom." It is the bottom of the last 14 candles, not of the market.
- "KDJ and the stochastic are two independent opinions." They are two versions of the same calculation.
- "J above 100 is an error." J = 3K − 2D, so it has no 0–100 limits. It is the amplified, fastest line.
Summary
- %K = (close − low) / (high − low) × 100 over the last N candles; %D is its average.
- Binance offers KDJ 9, 3, 3: K and D smoothed by thirds, J = 3K − 2D.
- Above 80 the close is near the top of the range, below 20 near the bottom.
- An oversold market can keep falling – the range moves down with it.