InvestorQ : As a trader in the markets, how can I use the DSS to effectively get signals of the future market trend?
Rutuja Nigam made post

As a trader in the markets, how can I use the DSS to effectively get signals of the future market trend?

Answer
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Arti Chavan answered.
1 year ago


For real signals you need to look at divergences in the DSS. Let us first understand what divergences are all about? Divergences form when a new high or low in price is not confirmed by the Stochastic Oscillator. A bullish divergence forms when price makes a lower low, but the Stochastic Oscillator forms a higher low. In other words, the stochastic oscillator is a cross purpose with the bearish signal that the price is giving. This indicates less downward momentum and that could foreshadow a bullish reversal. It means downsides are temporary in nature and the markets should bounce back soon. As a trader you need to position yourself accordingly. A bearish divergence is formed when price makes a higher high but the Stochastic Oscillator forms a lower high. This shows less upward momentum that could foreshadow a bearish reversal. It basically shows that there is lack of conviction and that the bounce in the market is driven perhaps by short covering than by any genuine buying in the stock or the index as a whole. Let us look at the formula to calculate the DSS.

DSS = EMA of the [EMA of the (Close – Lowest Low for the specified period)] /

EMA of the [EMA of the (Highest High for the specified period – Lowest Low for the specified period)] X 100