What it is
A normal stochastic shows where the close sits within the high to low range, from 0 to 100. SMI instead measures the distance from the midpoint of that range and smooths it twice. The result is centred on 0, smoother, and less prone to the jagged flips of a fast stochastic.
Above 0 the close is in the upper half of the recent range, below 0 in the lower half.
How it is calculated
1. Find the highest high and lowest low over the last 10 candles; the midpoint is halfway between them. 2. Distance = close minus midpoint. Range = highest high minus lowest low. 3. Smooth the distance with a 3 period EMA, then again with a 3 period EMA. Do the same with the range. 4. SMI = 100 x smoothed distance / (half of the smoothed range). 5. The signal line is an EMA of SMI (commonly 3 to 10 periods).
Settings
| Setting | Default | Range | What it changes |
|---|---|---|---|
| Length | 10 | 2 to 200 | How many candles define the high to low range. Longer gives slower, bigger swings. |
| Smoothing | 3 | 1 to 50 | The EMA length used for the double smoothing. Higher is smoother and later. |
How to read it
How to trade it
- 1
Check the trend on a higher chart, for example 1 hour NAS100 above its 50 EMA.
- 2
On the 5 or 15 minute chart, wait for SMI to fall below -40 in a pullback.
- 3
Enter long when SMI crosses above its signal line on a closed candle.
- 4
Stop below the pullback low, for example 25 to 40 points on NAS100.
- 5
Exit when SMI crosses below its signal line above +40, or at 2 times the stop.
The long is cancelled if SMI crosses back below its signal line and makes a new low, or price closes below the pullback low.
WickSpeak writes a plain-English reading of SMI on the live candle: what it is, where the close sits in the recent range right now, how to trade it and what would prove it wrong. In Playbook, a condition can check when SMI crosses above or below its signal line, crosses above or below zero, stays above or below zero, or is rising or falling.
WickSpeak Stochastic Momentum Index is one of the extra WickSpeak versions of the oscillators. The line is coloured by strength: faint when the reading is weak, glowing when it is strong, mint above the zero line and pink below it. Crosses of the zero line are marked only once the candle has closed, so a marker never vanishes after it appears. A gold marker shows a stretched reading, the strongest few percent of the indicator's own range. Divergences between price and the line are drawn on both the chart and the indicator, and a chip shows the same reading on a higher timeframe.
Best markets and timeframes
Works on 5 minute to 4 hour charts of gold, indices and forex. It suits swing pullbacks within trends and ranges with clear edges.
Common mistakes
- Selling every reading above +40 in a strong uptrend.
- Using stochastic levels of 80 and 20. SMI is centred on 0, so the matching levels are about +40 and -40.
- Taking signal crosses in the middle of the scale, where they carry little meaning.
Works well with
Questions traders ask
What is the difference between SMI and the stochastic?
The stochastic shows where the close sits within the range from 0 to 100. SMI measures the distance from the middle of the range, smooths it twice and runs from -100 to +100, so it is smoother and centred on 0.
What are the best SMI settings?
Blau's common settings are a 10 period range with smoothing of 3 and 3, which WickSpeak uses as its defaults. Swing traders sometimes use 13 and 25 for a slower line.
What are overbought and oversold levels on the SMI?
+40 and -40 are the usual levels. Some traders use +50 and -50 on fast settings to reduce signals.
Is SMI the same as SMI Ergodic?
They are related, both from William Blau, but SMI Ergodic is built from double-smoothed price change, closer to TSI. The Stochastic Momentum Index uses the midpoint of the high to low range.