This is the Double Smoothed Momentum as presented by William Blau- see Stocks & Commodities, May 1991 for additional information.
Indicator Description
Like the Double Smoothed Stochastic Oscillator, Blau’s Double Smoothed Momentum plot on a range from 0 to 100, applying the same rules of interpretation. Generally, plots above the 70 threshold indicates an overbought scenario, whereas values below 30 indicate oversold. If the Double Smoothed Momentum plot has been moving below the 30 level and crosses the signal line, it can be interpreted as a buy signal. Conversely, if the oscillator has been above the 70 level and crosses below the signal line, it can be taken as a sell signal.
Blau Double Smoothed Momentum (DSM-B):
The raw Stochastics is calculated as the percentage value for the close within the range created from the highest close and the lowest close over the lookback period. The term Double Smoothed Momentum is somewhat misleading. The DSM-B is obtained by separately double-smoothing both numerator and denominator of the raw Stochastics. The double-smoothed value for the numerator is then divided by the double-smoothed value for the denominator.
Stochastics Smoothing:
William Blau applied an EMA two time, both as numerator and denominator of the raw Stochastics.
Parameters: The lookback period for the raw Stochastics indicates the number of bars for which the highest close and lowest close is determined. The lookback period is comparable to all other Stochastics indicators. The default value is 14 bars. The double smoothing of numerator and denominator is done with two moving averages. The first smoothing is typically done with a faster moving average, the second with a slower moving average.
Signal line: William Blau did not use a signal line for the double smoothed indicators. We have added one as the cross of the signal line can be used for trend indication.
The Double Smoothed Momentum can be used in combination with mid/higher time frame trend analysis and volume readings. You may for example review the Efficiency Ratio and the Better Volume indicators.
Other library indicators
Other than the Double Smoothed Momentum Oscillator, this category features a number of other entries, including the Awesome Oscillator, Double Smoothed Sochastics (Blau), Double Smoothed Sochastics (Bressert), Stochastics Momentum Index, LBR 3/10, Fast Stochastics, Stochastic RSI, RSI and the Traders Dynamic Index (TDI). The NinjaTrader Indicator Library also features an advanced oscillators category, with among others the Rainbow Oscillator, Projection Oscillator and the SVE Stochastics ITF. Furthermore, our Indicator Spotlight newsletter has reviewed how the TDI indicator applies the RSI in three timeframes. Finally, the Ichimoku Kinko Hyo and the Squeeze Indicators, also discussed in the Indicator Spotlight, are also considered to be momentum indicators.
Finally, to get a better understanding of how the Double Smoothed Momentum plots, you may compare its output with the True Strength Index (Multiple TSI) or the Commodity Channel Index (CCI).
The indicator is available for NinjaTrader 8.
