SMI Technical Analysis and SMI Trading Signals

Developed by William Blau.

The SMI indicator is an adaptation of the classic Stochastic Oscillator indicator that smoothes out the stochastic indicator oscillations.

Construction of SMI

This indicator is calculated by comparing the crude 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 crude price is greater than the average of the range, the SMI will move upward.

When the closing crude 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.

Technical Analysis and How to Generate Trade Signals

Buy & Sell Signals/ Crossover Signals

The SMI can be used to generate buy & sell signals using the method shown below, Buy when the SMI is heading upwards and sell when its heading downwards.

Buy and Sell Signals/ Crossover Signals

Overbought/Oversold Level Crossovers

• Overbought levels above +40
• Oversold levels below -40

Buy signal is generated when this oscillator falls below oversold level & then rises above this level and starts to move upward.

Sell Signal is generated when this oscillator rises above overbought level & then falls below this level and starts to move downward.

Divergence Oil

The example shown below shows a bearish classic divergence between the crude price and the SMI. When the SMI showed this divergence the crude price trend reversed and started to move in a downward direction.

Bearish Trade Divergence