Recently, someone asked me how to calculate the KD indicator. Actually, this is a good question because many people have used the KD indicator for years without truly understanding its logic.

Let's start from the basics. The KD indicator consists of three parts: RSV, K value, and D value. They build upon each other, ultimately forming the line we see.

RSV is the foundation, determining whether the current price is at a high or low point within a certain period. The formula is simple: (Today's closing price – Lowest price in the past n days) / (Highest price in the past n days – Lowest price in the past n days) × 100. By default, n=9, so if today's closing price is the highest in the past 9 days, RSV is 100; conversely, if it's the lowest, RSV is 0.

The K value is smoothed based on RSV, blending yesterday's K value with today's RSV proportionally. This retains RSV's sensitivity while filtering out some noise. Because K reacts faster, it's called the fast line. The calculation is:: Today's K = (Yesterday's K × 2/3) + (Today's RSV × 1/3).

The D value smooths the K value again, making it the slowest and most stable line, hence called the slow line. The formula is: Today's D = (Yesterday's D × 2/3) + (Today's K × 1/3).

Some charting software also displays a J line, which is an extension of KD. The formula is J = 3K – 2D. The J value amplifies the divergence between K and D. When J > 100, it indicates extreme overbought; when J < 100, it indicates extreme oversold. However, the J line often produces false signals. If you only want a stable trend indicator, the KD indicator itself is sufficient.

Regarding parameter settings, this is an interesting topic. Most software defaults to 9, 3, 3. This isn't arbitrary; it's a balance between sensitivity and accuracy.

The first 9 represents the period based on the past 9 candles. Why 9? Because in traditional finance, 9 days roughly cover two weeks of trading days. This length captures short-term fluctuations without being too sluggish due to a long cycle. The two 3s represent the smoothing periods for K and D. The first 3 is a 3-day moving average of RSV to filter out sudden spikes; the second 3 smooths the K value further to stabilize signals.

Why has this set of parameters become mainstream? One key reason is its effective prediction of oscillating markets in stocks, forex, and other markets. Another reason is collective consensus: when most traders use the same KD parameters, the support or resistance signals generated tend to be more reliable.

However, KD parameters are not fixed. If you want to find the most suitable parameters for your trading style, you need to adjust them. Mainly, you adjust the n value: smaller n makes the indicator faster with more signals but more false positives; larger n makes it slower with fewer signals but more reliable.

For short-term day trading, you might try parameters like 5, 3, 3. This will produce more frequent golden and death crosses, but remember to combine with other technical analysis tools to filter out noise. For more stable swing trading, you can extend the cycle to 18, making it 18, 3, 3. This results in smoother K and D curves, with crosses only appearing during major trend reversals.

Different timeframes also matter. On 5-minute and 15-minute charts, I usually use 14, 3, 3 to filter noise; on hourly and daily charts, the default 9, 3, 3 works well for capturing trend turns; on weekly and monthly charts, 9, 3, 3 is also suitable, with fewer signals but stronger significance, ideal for long-term positioning.

A common misconception is that more detailed parameter tuning equals higher accuracy. I've seen people set parameters to 3, 2, 2, resulting in countless cross signals daily, leading to overtrading and frequent stop-losses. Adjusting parameters should align with your trading strategy, not be used to predict the future.

For most investors, the default 9, 3, 3 parameters are sufficient for most needs. Unless you have a clear reason to change them, it's best to stick with this widely accepted set supported by collective consensus.

Finally, a note on overbought and oversold levels: traditionally, KD above 80 is considered overbought, below 20 oversold. But these thresholds may need slight adjustments depending on the market.

Once you understand the calculation logic and the significance of the parameters behind the KD indicator, you'll be better equipped to find suitable trading strategies in oscillating markets. Especially with the classic 9, 3, 3 parameters, which are supported by collective consensus and tend to produce more reliable support and resistance signals. Ultimately, you should also consider your risk tolerance and trading style when making decisions.