Stochastic Momentum Index - MetaTrader 5 Script | Forex Indicator Download - MT4/MT5 Resources - MetaTrader 5 Resources

The Stochastic Momentum Index (SMI) was developed by William Blau and introduced in the January 1993 issue of Technical Analysis of Stocks and Commodities magazine.

It combines an interesting variation on the popular stochastic oscillator. The Stochastic Oscillator gives you a value that shows you the distance of the current close relative to the most recent x-period high/low range, while the SMI shows you the distance of the close relative to the midpoint of the most recent x-period high/low range.

The result is an oscillator that ranges between +/- 100 and is less unstable than an equal-periodic stochastic oscillator.

The interpretation of the SMI is actually the same as the Stochastic Oscillator.

Three popular methods include:

Buy when the SMI falls below a specific level (e.g. -40) and then rises above that level, and sell when the oscillator rises above a specific level (e.g. +40) and then falls below that level.

However, before making any trade-offs with strictly overbought/oversold levels, it is recommended that you first qualify the market's trend using indicators such as R-squared or the Chande Momentum Oscillator. If these indicators indicate that the market is not trending, then trading based on strict overbought/oversold levels should yield the best results. If a trending market is suggested, then you can use oscillators to trade in the direction of the trend.

Buy when the SMI rises above the signal line (dashed line) and sell when the SMI falls below the signal line.

Look for disagreements. For example, the price made a series of new highs, while the SMI failed to surpass its previous highs.

Mr. Blau also pointed out that the 1-day SMI (with a large smoothing period, such as 100) is very sensitive to the closing price of the day's high and low.

Attachment download

📎 stochastic_momentum_index.mq5 (9.67 KB)

Source: MQL5 #19986