Stochastic Momentum Index Reversal Signals with Candle-Body Exits

Summary

This strategy uses the Stochastic Momentum Index (SMI), derived from closing price relative to the recent high-low range, to identify possible overbought and oversold conditions. It pairs the SMI with a smoothed signal line and enters long or short when the signal line is beyond a threshold and the candle direction agrees with the setup. A candle-body rule closes positions when a sufficiently large candle points against the trade.

The document describes the indicator formula, configurable lookback and smoothing inputs, and a BTC/USDT futures backtest setup covering November 2023 at hourly resolution. It provides no performance statistics or outcome, so it does not establish profitability. The source logic also differs from parts of the prose: the code enters on threshold and candle conditions rather than SMI crossing its signal line, and its body-based exit is not a conventional breakout stop. Reversal signals can fail or recur during trends, and parameter choices and trading costs may affect results.

Key ideas

• The SMI compares the close with the midpoint of a recent high-low range and scales the result by a smoothed range.
• The source opens long or short positions when the signal line crosses a threshold and candle direction matches the setup.
• A large candle body in the opposite direction can close an open position.
• The document warns that failed reversals and sensitive exits can cause repeated losses.
• The published backtest settings do not include performance results.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.