InvestorQ : What is a Double smoothed Stochastic and how is interpreted and used in practice?
Rutuja Nigam made post

What is a Double smoothed Stochastic and how is interpreted and used in practice?

Answer
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Arti Chavan answered.
1 year ago


The Double Smoothed Stochastic indicator was created by William Blau and it applies Exponential Moving Averages (EMAs) of two different periods to a standard stochastic %K. This is how the process goes about. The components that construct the Stochastic Oscillator are first smoothed with the two EMAs. Then, the smoothed components are plugged into the standard stochastic formula to calculate the indicator. Now let us also look at how this indicator works

De-trended Smoothed Stochastic or DSS ranges from 0 to 100, like the standard Stochastic Oscillator. The same rules of interpretation apply to Stochastics can be applied to DSS, although DSS offers a much smoother curve than the raw Stochastic. The same rule of 30 and 70 will apply in case of DSS also. Generally, the area above 70 indicates an overbought region, while the area below 30 is considered an oversold region. A sell signal is given when the oscillator is above the 70 level and then crosses back below 70. Conversely, a buy signal is given when the oscillator is below 30 and then crossed back above 30. 70 and 30 are the most common levels used but can be adjusted as needed. This is the same as the basic stochastic but the only difference is that the DSS is more smoothed as the exponential moving averages are considered in this case.