The indicator allows to display the Double Smoothed Stochastics – see Stocks & Commodities, January 1991. The Double Smoothed Stochastics as introduced by William Blau should not be confused with the better known Double Smoothed Stochastics (DSS) indicator by Walter Bressert.
Indicator Description
Like a standard Stochastic Oscillator, Blau’s Double Smoothed Stochastics (DSS) plot on a range from 0 to 100. The same rules of interpretation can therefore be applied. Plots above the 70 threshold indicate overbought scenarios, values below 30 oversold. When the plot has been moving below the 30 level and cross above the signal line, consider long setups. Conversely, if the DSS indicator has been above the 70 level and cross below the signal line, consider short setups.
Blau Double Smoothed Stochastics (DSS-B):
The raw Stochastics is calculated as the percentage value for the close within the range created from the highest high and the lowest low over the lookback period. The DSS-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 twice applied an EMA to both numerator and denominator of the raw Stochastics. This version of the DSS indicator allows to use 30 different moving averages for the smoothing. The same moving average type is used for the first and the second average calculation.
Parameters: The lookback period for the raw Stochastics indicates the number of bars for which the highest high and lowest low 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 moving average type and the period for the signal line can also be selected.
The Double Smoothed Stochastics indicator is best used in combination with a mid/higher time frame trend filter, confirming setups with volume analyis. You may for example review the Sine WMA, the Moving Average Wave or the Multiple MA Cross together with the Better Volume indicator.
Other library indicators
Other than this version of the Double Smoothed Stochastics indicator, the momentum oscillators category feature a number of other entries, including the Acceleration Deceleration, Awesome Oscillator, LBR 3/10 Oscillator, Double Smoothed Momentum, Fast Stochastics, Stochastic Momentum Index, Projection Oscillator and the Traders Dynamic Index (TDI). In our Indicator Spotlight newsletter, we looked at how the TDI indicator applies the RSI in three timeframes. The Ichimoku Kinko Hyo, also discussed in our Indicator Spotlight, has certain similarities with the MACD and the Donchian Channel mid line.
The DSS indicator (Blau) is available for NinjaTrader 8.
