SMI Indices Technical Analysis & SMI Trading Signals

Created by William Blau.

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

SMI Indices Indicator - SMI Indicator Analysis - SMI Indices Indicator

Construction of SMI

This stock indicator is calculated by comparing the stock trading price compared to the average/mean of an n number of periods.

Then instead of drawing these values directly, smoothing using an Exponential MA Moving Average is applied & then the values drawn to form the SMI.

When the closing stock trading price is greater than the average of the range, the SMI will move upward.

When the closing stock trading price is less than the average of the range, the SMI will go downwards.

This oscillator ranges between the values of +100 and -100, this technical technical indicator is also less prone to fake-outs compared to the stochastic oscillator indicator.

Stock Technical Analysis and How to Generate Trading Signals

Buy and Sell Trading Signals/ Cross-over Signals

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

Buy and Sell Trading Signals Crossover Signals - SMI Indicator Analysis - SMI Indicator

Buy & Sell Trading Signals/ Cross over Signals

Overbought/Oversold Level Cross-overs

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

Buy signal gets generated when this oscillator falls below over-sold level & then rises above this level and starts to move upward.

Sell Signal is generated/derived when this oscillator rises above over-bought level & then falls below this technical level and starts and begins to move downward.

Divergence Trading

The illustration explained & illustrated below displays a bearish classic divergence between the stock price & the SMI. When the SMI showed this divergence the stock price trend reversed and started to move in a downward direction.

Bearish Divergence SMI Indices Indicator - SMI Indices Indicator Analysis - SMI Indicator

Bearish Stock Divergence

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