What is the special significance of the three golden crosses formed by KDJ three lines at a low level?

The KDJ indicator's three golden crosses below level 20 signal strong bullish reversal potential in crypto, especially when confirmed by volume and trend context.

Jul 29, 2025 at 08:36 pm

Understanding the KDJ Indicator in Cryptocurrency Trading

The KDJ indicator is a momentum oscillator widely used in technical analysis, particularly in cryptocurrency trading. It consists of three lines: the %K line, the %D line, and the %J line. These lines are derived from price data over a specified period, typically 9 days, and help traders identify overbought or oversold conditions. The %K line reflects the current closing price relative to the high-low range, the %D line is a smoothed version of %K, and the %J line is a projection of %K that moves faster and is more volatile. When all three lines are below 20, they are considered to be in the oversold zone, indicating potential reversal points. This low-level positioning sets the stage for significant signals such as the formation of three golden crosses.

What Constitutes a Golden Cross in the KDJ Indicator?

A golden cross in the KDJ context occurs when the %K line crosses above the %D line while both are in the oversold region, typically below 20. This crossover suggests a shift from bearish to bullish momentum. However, a single golden cross may not be reliable due to market noise or false signals. The appearance of three consecutive golden crosses at a low level increases the signal’s credibility. Each cross must meet specific criteria:

• The %K line must rise above the %D line
• All three lines (%K, %D, %J) must remain below 20 during the crossovers
• The %J line should not exceed 50, indicating the market hasn’t entered overbought territory prematurely
  This repeated confirmation suggests sustained buying pressure and a potential trend reversal from a downtrend to an uptrend.
  

  Why the Three Golden Crosses Carry Special Weight in Crypto Markets

  
  Cryptocurrency markets are highly volatile and prone to rapid price swings. In such an environment, signals that demonstrate repeated bullish confirmation are especially valuable. The occurrence of three golden crosses in the KDJ at low levels acts as a multi-layered validation of a potential bottom. Each cross represents a failed attempt by sellers to push prices lower, followed by buyers regaining control. This pattern often coincides with accumulation phases where large investors begin purchasing assets after a prolonged decline. The fact that all three lines remain in the oversold zone throughout the process indicates that the market has not yet caught excessive bullish momentum, reducing the risk of a premature rally. This makes the signal more reliable than isolated crossovers.
  

  How to Identify and Confirm the Three Golden Crosses on a Chart

  
  To detect this pattern accurately, traders must follow a precise visual and analytical process:
• Open a cryptocurrency price chart (e.g., Bitcoin or Ethereum) on a platform like TradingView or Binance
• Apply the KDJ indicator with default settings (9,3,3) or adjust based on trading style
• Zoom into a timeframe where the price has been in a sustained downtrend (daily or 4-hour charts are ideal)
• Locate areas where all three KDJ lines are below 20
• Look for the %K line crossing above %D — this is the first golden cross
• Wait for the lines to separate, then converge again, and observe if %K crosses %D upward a second time
• Repeat the process to confirm the third upward crossover
• Ensure the %J line does not spike above 80 during these crossovers, which would indicate overbought conditions and weaken the signal
• Cross-verify with volume data: increasing volume during the third cross strengthens the validity
  

  This meticulous observation helps filter out false signals common in low-liquidity altcoins or during sideways markets.

  Strategic Implications for Traders and Entry Techniques

  
  When the three golden crosses appear at a low level, traders may consider initiating long positions, but caution is essential. A prudent approach involves:
• Waiting for the third crossover to complete before acting
• Placing a buy limit order slightly above the latest crossover point to avoid chasing price
• Setting a stop-loss below the recent swing low to manage downside risk
• Using position sizing — allocate a portion of capital initially, then add more if price confirms upward movement
• Monitoring the KDJ lines after entry: if the %K and %D lines continue rising above 20 and the %J line moves toward 50, it confirms momentum is building
• Avoiding immediate full exposure — the signal indicates potential reversal, not guaranteed continuation
  

  This strategy aligns with risk management principles crucial in the unpredictable crypto market.

  Common Misinterpretations and Pitfalls to Avoid

  
  Many traders misread the three golden crosses due to improper settings or context. Key mistakes include:
• Using non-standard KDJ parameters without understanding their impact on signal timing
• Ignoring the broader market trend — the signal is stronger in a downtrend nearing exhaustion, not in a strong bear market
• Acting on incomplete crossovers — a partial cross that reverses quickly is not valid
• Overlooking divergence — if price makes a lower low but KDJ makes a higher low, it strengthens the signal; absence weakens it
• Trading during low-volume periods such as weekends or holidays, where signals may lack follow-through
  

  These errors can lead to losses, especially in highly leveraged environments like futures trading.

  Frequently Asked Questions

  
  What timeframes are best for observing the three golden crosses in KDJ?
  The daily and 4-hour charts are most effective. The daily chart provides stronger confirmation for swing traders, while the 4-hour suits short-term traders. Lower timeframes like 15-minute charts generate too many false signals due to volatility.
  

  Can the three golden crosses occur above the 20 level and still be valid?
  
  No. The special significance lies in the oversold zone, specifically below 20. If the crossovers happen above 20, they lose their reversal implication and may instead indicate a continuation or mid-trend pullback.

  How does the %J line behave during the three golden crosses?
  
  The %J line should remain below 50 and ideally rise gradually. If it spikes above 80 during the crossovers, it suggests overbought pressure and weakens the bullish reversal signal.

  Should traders rely solely on KDJ for entry decisions?
  
  Absolutely not. The KDJ should be combined with other tools such as moving averages, RSI, or support/resistance levels. Using it in isolation increases the risk of false entries, especially in choppy or ranging markets.