SMI Indices Technical Analysis and SMI Trading Signals
Developed by William Blau.
The SMI technical indicator is an adaptation of the classic Stochastic Oscillator indicator that smoothes out the stochastic trading indicator oscillations.
Construction of SMI
This stock indices indicator is calculated by comparing the stock indices trading price relative to the average of an n number of periods.
Then instead of plotting these values directly, smoothing using an Exponential Moving Average is applied and then the values drawn to form the SMI.
When the closing stock indices trading price is greater than the average of the range, the SMI will move upward.
When the closing stock indices trading price is less than the average of the range, the SMI will move downwards.
This oscillator ranges between the values of +100 and -100, this indicator is also less prone to whipsaws compared to the stochastic oscillator.
Stock Indices Technical Analysis & How to Generate Signals
Buy and Sell Indices Trading Signals/ Crossover Signals
The SMI can be used to generate buy and sell stock indices signals using the method shown below, Buy when the SMI is heading upwards and sell when its heading downwards.
Buy & Sell Indices Trading Signals/ Crossover Signals
Overbought/Oversold Level Stock Indices Trading Crossovers
- Overbought levels above +40
- Oversold levels below -40
Buy trading signal is generated when this oscillator falls below over-sold level and then rises above this level and starts to move upward.
Sell Indices Trading Signal is generated when this oscillator rises above overbought level and then falls below this level and starts to move downward.
Divergence Indices Trading
The example explained and illustrated below shows a bearish classic divergence between the stock indices price & the SMI. When the SMI showed this divergence the stock indices price trend reversed and started to move in a downward direction.
Bearish Stock Indices Trading Divergence
