Stochastic Momentum Index Metals Analysis & Stochastic Momentum Index Trading Signals
Developed by William Blau.
The Stochastic Momentum Index, SMI indicator is an adaptation of the classic Stochastic Oscillator technical indicator which smoothes out the stochastic oscillations.
Construction of Stochastic Momentum Index Technical Indicator
This metals indicator is calculated by comparing the metals 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 & then the values drawn to form the SMI.
When the closing metals price is greater than the average of the range, the SMI will move up.
When the closing metals price is less than the average of the range, the SMI will move down.
This oscillator ranges between the values of +100 & -100, this indicator is also less prone to whipsaws compared to the stochastic oscillator.
Metals Analysis & Generating Trading Signals
Buy & Sell Metals Signals/ Crossover Signals
The Stochastic Momentum Index can be used to generate buy & sell metal signals using the method shown below, Buy when the SMI is heading upwards and sell when its heading downwards.
Buy & Sell Metals Signals/ Crossover Signals
Overbought/Oversold Level Metals Trading Crossovers
- Overbought levels above +40
- Oversold levels below -40
Buy signal is generated when this oscillator falls below over-sold level & then rises above this level & starts to move upward.
Sell Metals Signal is generated when this oscillator rises above overbought level & then falls below this level & starts to move downward.
Divergence Metal Trading
The example illustrated and explained below shows a bearish classic divergence between the metals price & the SMI. When the Stochastic Momentum Index showed this divergence the metals price metals trend reversed and started to move in a downward direction.
Bearish Metals Trading Divergence
