Double Smoothed Stochastic (DSS) Indicator: The Complete Trading Guide

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Double Smoothed Stochastic (DSS) Indicator: The Complete Trading Guide

If you've ever tried to trade the classic Stochastic Oscillator, you already know its biggest flaw: it's jumpy. One candle it's screaming "overbought," the next it's whipsawing back below the signal line, and your "buy" turns into a "sell" before your coffee gets cold.

That's the exact problem the Double Smoothed Stochastic (DSS) was built to fix.

In this guide, you'll learn what DSS is, how it's calculated, how to read its signals, and how it stacks up against the regular Stochastic Oscillator — so you can decide whether it deserves a spot on your chart.

What Is the Double Smoothed Stochastic (DSS)?

The Double Smoothed Stochastic was developed by technical analyst William Blau, the same mind behind several other "smoothed" momentum tools. Instead of applying the standard Stochastic formula directly to raw price data, Blau's approach smooths the underlying price components with two separate Exponential Moving Averages (EMAs) before running them through the Stochastic calculation.

In plain English: DSS takes the ingredients of a normal Stochastic Oscillator, filters out the market noise twice, and then computes the oscillator. The result is a line that still ranges from 0 to 100 and follows the same interpretation rules as a classic Stochastic — but moves in far smoother, more decisive curves instead of a jagged zig-zag.

That smoothness is the whole point. Fewer false spikes mean fewer knee-jerk trades based on noise rather than genuine momentum shifts.

The Double Smoothed Stochastic Formula

DSS is calculated in two stages: smoothing, then oscillating.

Step 1 — Smooth the raw components: The price data used to build a Stochastic — essentially the distance between the closing price and the recent high/low range — is run through an EMA, and that result is smoothed again with a second EMA. This is where the "double" in Double Smoothed Stochastic comes from.

Step 2 — Apply the Stochastic formula to the smoothed data:

DSS = 100 × [ EMA( EMA( Close − Lowest Low ) ) ]
              ─────────────────────────────────────
              [ EMA( EMA( Highest High − Lowest Low ) ) ]

Where "Lowest Low" and "Highest High" are taken over your chosen lookback period, and each component is passed through the two EMA smoothing stages described above.

You don't need to calculate this by hand — nearly every modern charting platform (TradingView, thinkorswim, MetaTrader, and most brokerage platforms) has DSS built in as a selectable indicator. What matters is understanding why it's built this way, so you can trust — and correctly interpret — what it's showing you.

How to Read and Trade DSS Signals

Because DSS still oscillates between 0 and 100, you can apply the same core rules you'd use for a standard Stochastic — just with more confidence in each signal, thanks to the reduced noise.

1. Overbought and Oversold Zones

  • Above 70 is generally considered the overbought zone.
  • Below 30 is generally considered the oversold zone.
  • A sell signal forms when DSS rises above 70 and then crosses back below it.
  • A buy signal forms when DSS drops below 30 and then crosses back above it.

These 70/30 thresholds are the most widely used defaults, but they're not sacred — some traders tighten them to 80/20 for stronger trending markets, or loosen them to 65/35 for choppier, range-bound conditions.

2. Divergence Signals

Divergences happen when price and the oscillator disagree — and they're often an early warning that a trend is losing steam.

  • Bullish divergence: Price prints a lower low, but DSS prints a higher low. This suggests selling pressure is fading even though price hasn't turned yet — a potential setup for a bullish reversal.
  • Bearish divergence: Price prints a higher high, but DSS prints a lower high. This suggests buying momentum is weakening — a potential setup for a bearish reversal.

Because DSS is smoother than the raw Stochastic, its swing highs and lows tend to be cleaner and easier to compare against price action, which makes divergence spotting considerably less subjective.

DSS vs. the Standard Stochastic Oscillator

Feature Standard Stochastic Double Smoothed Stochastic
Range 0–100 0–100
Smoothing Single (or none) Double EMA smoothing
Sensitivity High — reacts to every price tick Lower — filters out short-term noise
False signals More frequent Fewer, cleaner signals
Best for Fast scalping, very short timeframes Swing trading, trend confirmation, cleaner divergence reads
Signal lag Minimal Slightly more lag (trade-off for smoothness)

The trade-off is straightforward: you give up a bit of responsiveness in exchange for far fewer misleading whipsaws. For most swing traders and anyone who trades higher timeframes, that trade-off tends to be worth it.

Building a Simple DSS Trading Strategy

Here's a straightforward framework to get started (always test on historical data or a demo account before risking real capital):

  1. Set your lookback period. Shorter periods (e.g., 8–13) react faster; longer periods (e.g., 20–21) produce smoother, more reliable signals with more lag.
  2. Wait for a zone touch. Let DSS move into overbought (>70) or oversold (<30) territory — don't act on the touch itself.
  3. Confirm with the crossback. Only take the signal once DSS crosses back through the 70 or 30 line, not while it's still inside the zone.
  4. Check for divergence as extra confirmation. A crossback signal that's backed by a matching divergence is generally stronger than either signal alone.
  5. Combine with price action or trend context. DSS works best as a timing tool layered on top of support/resistance, trendlines, or a moving-average filter — not as a standalone system.

Limitations to Keep in Mind

  • Lag: Double smoothing means DSS reacts more slowly than the raw Stochastic. In fast-moving markets, you may enter later than a more sensitive trader.
  • Strong trends can stay "overbought" or "oversold" for a long time. Don't treat a 70+ reading as an automatic sell — in a strong uptrend, DSS can hover in overbought territory for extended periods.
  • No indicator works in isolation. DSS is a momentum tool, not a crystal ball. Pair it with volume, trend, and price structure for better context.

Frequently Asked Questions

Who created the Double Smoothed Stochastic indicator? It was developed by William Blau, a technical analyst known for applying double-EMA smoothing techniques to classic momentum indicators.

Is DSS better than the regular Stochastic Oscillator? "Better" depends on your trading style. DSS produces smoother, more reliable signals with fewer false positives, which suits swing traders and trend followers. Scalpers who need instant reactions may still prefer the raw Stochastic.

What settings should I use for DSS? There's no universal answer — shorter EMA periods increase sensitivity, longer periods increase smoothness. Many traders start with common defaults on their platform and adjust based on the asset's volatility and their preferred timeframe.

Can DSS be used on any market? Yes — stocks, forex, crypto, and futures traders all use DSS, since it's simply a momentum oscillator applied to price data.

Final Thoughts

The Double Smoothed Stochastic takes a proven momentum concept — the Stochastic Oscillator — and refines it by filtering out the noise that causes so many false signals on the standard version. It won't predict the market, and it shouldn't be your only tool, but as part of a broader strategy that includes trend analysis and solid risk management, DSS can help you trade momentum shifts with a lot more clarity and a lot less guesswork.

This article is for educational purposes only and does not constitute financial or investment advice. Always do your own research and consider your risk tolerance before trading.


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