Stochastic Momentum Index Gold Analysis and Stochastic Momentum Index Signals

Developed by William Blau.

The Stochastic Momentum Index, SMI is an adaptation of the classic Stochastic Oscillator Technical technical indicator which smoothes the stochastics oscillations.

SMI - How to Use Stochastic Momentum Index (SMI) Indicator in Chart

Construction of SMI Indicator

This indicator is calculated by comparing the price in relation to the average mean of an n number of periods.

Then instead of plotting/drawing these values directly, smoothing using an Exponential MA is applied & then the values drawn to form the SMI.

When the closing price is greater than the average mean of the range, the SMI will move upwards.

When the closing price is less than the average mean of the range, the SMI will move downward.

This oscillator ranges between the values of +100 & -100, this indicator also is less prone to fake outs compared to the stochastic oscillator trading indicator.

Gold Analysis and Generating Signals

Buy & Sell Signals/ Cross-over Signals

The SMI can be used to generate buy and sell signals using the method shown below, Buy when the SMI is moving upward & sell when its moving downward.

SMI - Stochastic Momentum Index Analysis

Buy & Sell Signals/ Crossover Signals

Overbought/Oversold Level Cross overs

Overbought levels above +40
Over-sold levels below -40

Buy trading signal gets derived and generated when this oscillator falls below over-sold level and then rises above this technical level and starts to move upwards.

Sell Signal is generated when this oscillator rises above over-bought level and then falls below this level and starts to move downwards.

Divergence XAU/USD Trading

The example shown & described below displays a bearish classic divergence between the price and the SMI. When the Stochastic Momentum Index showed this divergence the market trend reversed & started to move in a downwards direction.

Stochastic Momentum Index Gold Indicator - SMI Indicator

Bearish XAUUSD Trade Divergence

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