Recently, I discovered that many people have a fatal misunderstanding about the KD indicator—just buy when they see a golden cross, sell when they see a death cross. I’ve also fallen into this trap myself, and only later realized why this logic always results in losses.

Let me briefly explain the essence of KD. The K-line is the fast line, reacts quickly; the D-line is the slow line, moves more smoothly. When the K-line crosses above the D-line, it’s a golden cross, seemingly a buy signal, but this only indicates short-term momentum is strengthening, not that the long-term trend is about to rise. Many people stumble here, entering the market during a major bear phase at a small-time frame’s golden cross, only to buy at the rebound stage and get stuck later.

What is a truly useful approach? Incorporate overbought and oversold zones. KD below 20 indicates oversold, above 80 indicates overbought. When a golden cross appears below 20, that’s a real sign of a bottoming reversal, with a much higher success rate. Conversely, if a golden cross occurs above 80, it might be the last gasp of the rally, and you risk catching the tail end of the trend.

I’ve found that many people only look at the daily KD, which results in a lot of false signals. During consolidation phases, the K-line crosses the D-line up and down repeatedly, making short-term traders easily shaken out. So my later approach is to combine weekly charts to filter signals. Weekly golden crosses are much more accurate, and they occur frequently enough, making them suitable for swing trading.

But there’s something even more worth paying attention to—how to interpret the monthly KD. Monthly-level golden crosses are extremely rare, maybe only once every few years, but when they do appear, it indicates the market is in a historically oversold zone, making it the best time for long-term positioning. I’ve seen several instances of low-level monthly golden crosses, each accompanied by years of significant rallies afterward. So if you’re not a short-term trader, understanding the monthly KD is actually more important than the daily.

Many beginners ask how to interpret the monthly KD correctly. The answer is: be patient and wait. Monthly signals are rare, meaning less noise and higher accuracy. When the monthly KD forms a golden cross from an oversold area, even if there are short-term fluctuations, the long-term direction is basically set. At this point, ignoring short-term volatility can help you secure the best entry points.

Additionally, it’s important to note that crossover signals only reflect momentum shifts, not trend structure. Therefore, whether it’s daily, weekly, or monthly KD, they should be combined with other technical tools for confirmation. For example, look at support and resistance levels, trading volume, and larger trend directions. Only by integrating these can you truly filter out false signals.

In practical trading, be especially cautious of three common false signals. First, frequent crossovers within consolidation zones—small fluctuations that can’t break the range. Second, counter-trend crossovers—when the main trend is still bearish, small-time frame golden crosses only last a short while before being swallowed up. Third, golden crosses at high levels—profit margins are already squeezed, and a reversal downward could happen at any time.

To sum up, the greatest value of the KD indicator isn’t just in the crossover signals themselves, but in combining overbought/oversold zones, different timeframes, and other technical analysis tools. Especially regarding the monthly KD—if you’re a long-term investor, this is far more valuable than short-term crossover signals. Recently, I’ve been monitoring some assets’ monthly charts on Gate, and if you’re interested, you can check them out yourself.