Stochastic Momentum Index for Gold: Analysis and Signals

Developed & Created by William Blau.

The Stochastic Momentum Index, SMI, is like a changed version of the regular Stochastic Oscillator Technical technical indicator, which makes the stochastic movements smoother.

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

Construction of SMI Indicator

Calculation of this technical indicator involves comparing the current price against the average mean across a defined number of periods.

Instead of showing these values as they are, they are made smoother using an Exponential MA, and then these smoother values are shown to make the SMI.

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

When the price at closing is lower than the range's average value, the SMI will subsequently move downward.

This tool shows values between +100 and -100, and it is also less likely to give false signals compared to the stochastic oscillator trading tool.

Gold Analysis and Generating Signals

Buy & Sell Signals/ Cross-over Signals

You can use the SMI to find buy and sell signals using the method below: Buy when the SMI goes up and sell when it goes down.

SMI - Stochastic Momentum Index Analysis

Buy & Sell Signals/ Crossover Signals

Overbought/Oversold Level Cross overs

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

A buy signal is made when this thing drops below the level where it's too sold, then goes back above that level and starts to climb.

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 below highlights a bearish divergence between price and the Stochastic Momentum Index (SMI). When this divergence occurred, the market trend reversed and began moving downward.

Stochastic Momentum Index Gold Indicator - SMI Indicator

Bearish XAUUSD Trade Divergence

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