SMI Indices Technical Analysis & SMI Trading Signals

Created by William Blau.

The SMI tool is a version of the Stochastic Oscillator that makes the up-and-down movements of the stochastic indicator smoother and clearer.

SMI Indices Indicator - Analyzing the SMI Indicator

Construction of SMI

The calculation of this stock tool involves looking at the stock's price and comparing it to the average value across a number of periods.

Then, instead of showing those values directly, a smoothing method called Exponential MA Moving Average is used, and then the values are drawn to make the SMI.

Should the stock's closing price surpass the average value across the entire range, the SMI is projected to ascend.

When the closing trading price is below the average of the range, the SMI will trend downwards.

This oscillator goes between +100 and -100, and this technical tool is also less likely to give false signals than the stochastic oscillator indicator.

Stock Technical Analysis and How to Generate Trading Signals

Buy and Sell Trading Signals/ Cross-over Signals

Use the SMI to create buy and sell signals this way: buy when it rises, and sell when it drops.

Trading Signals for Crossover - Analysis of SMI Indicator Signals - SMI Indicator

Buy & Sell Trading Signals/ Cross over Signals

Overbought/Oversold Level Cross-overs

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

A buy signal appears when the oscillator drops below the oversold line. Then it climbs back up and heads higher.

A sell signal comes when this oscillator climbs above the overbought line, then drops back down and heads lower.

Divergence Trading

The subsequent illustration clearly demonstrates a bearish classic divergence between the stock's price action and the SMI indicator. After this divergence was observed, the stock price trend reversed its course and began declining.

Analysis of Bearish Divergence Detected by the SMI Indices Indicator

Bearish Stock Divergence

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