Hey there, fellow traders! Today, let’s dive into the Double Smoothed Stochastic Indicator (DSS), a powerful tool developed by Walter Bressert. If you’re familiar with the stochastic indicator, you’ll find that the DSS builds on that foundation with some added finesse.
The DSS uses a calculation method quite similar to its stochastic counterpart. Here’s the gist: values above 80 indicate overbought conditions, while values below 20 signal oversold conditions. This dual-layer smoothing helps you pinpoint market movements more accurately.
For those interested in the nitty-gritty, the formula is outlined on this site.
Description
William Blau and Walter Bressert each contributed their unique spins on the Double Smoothed Stochastics. This indicator employs two exponentially smoothed moving averages to smooth out the input values—highs, lows, and closes—similar to how the traditional stochastic formula operates.
Calculation
Here’s how you can calculate the DSS:
1. **Numerator:** Start by calculating the difference between the current close and the period low.
**Denominator:** This is the difference between the period high and the period low. Now, take the quotient of the numerator and denominator, apply exponential smoothing, and multiply by 100.
2. The second step follows a similar method, using the newly calculated price series from the first step.
Parameters
You can adjust the period length anywhere from 2 to 500. Most traders typically use a period length between 5 and 30. Additionally, the smoothing interval can range from 1 to 50, with shorter smoothing values being more meaningful for short-term analysis.
Interpretation
Using the DSS is much like using the traditional stochastic method. Values above 70 or 80 are generally considered overbought, while values below 20 or 30 indicate oversold conditions. If you see the DSS rising above its center line, that’s a bullish signal; conversely, a drop below the center line suggests a bearish trend.
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