Stochastic Momentum Index - VertexFX

TraderEd

Master Trader
May 8, 2014
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0
72
Hello,

Stochastic Momentum Index (SMI) is a more refined version of the stochastic oscillator. It uses

a wider range of values for the oscillator calculation and have higher sensitivity to closing

prices.

SMI calculates the distance of the current closing price as it relates to the median of the

high/low range of price. SMI oscillates between the range +100 and -100. The SMI is primarily

used to identify overbought or oversold market conditions in the market. When SMI value reaches

extreme levels, the market is usually in overbought or oversold condition.

It can also be used a general trend indicator, values above 40 as indicative of a bullish trend

and negative values greater than -40 as showing a bearish trend. Divergence between SMI and

Price as price makes new high or low can be used as a forewarning to trend reversal. The SMI

indicator can be customized through the parameters, SMI period and smoothing period. Like the

stochastic oscillator, SMI has 2 periods, Period Q and period R, similar to %k and %D of the

stochastic oscillator.

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