Stochastic Momentum Index: Calculation and Trading Signals
Summary
The Stochastic Momentum Index (SMI), introduced by William Blau, measures a closing price’s position relative to the midpoint of a recent high-low range. Unlike the conventional Stochastic Oscillator’s comparison with the range itself, this midpoint reference produces an oscillator bounded around zero, with positive readings when the close is above the midpoint and negative readings when it is below. The document characterizes the SMI as less erratic than an equal-period Stochastic Oscillator.
It outlines three common uses: reversals across chosen overbought or oversold thresholds, crossings of the SMI and its signal line, and divergence between price extremes and oscillator readings. Threshold trades should be conditioned on whether the market is trending; the source suggests using other indicators to assess that regime. It also notes that a one-day SMI with long smoothing periods can be sensitive to the close’s location within the daily range. These are interpretation guidelines, not performance evidence, and the document provides no tested results or detailed risk rules.
Key ideas
- The SMI compares the close with the midpoint of a recent high-low range.
- Positive and negative readings indicate whether the close is above or below that midpoint.
- Potential signals include threshold reversals, signal-line crossings, and price-oscillator divergences.
- Threshold-based trades should account for whether market conditions are trending or range-bound.
- The document offers indicator interpretation but does not report backtest evidence.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.