Name, Sometimes Called:
Stochastic Momentum Index
Sometimes abbreviated to SMI
Brief Description:
The Stochastic Momentum Index provides a refinement
of the Stochastic Oscillator indicator, which shows the distance
between the current close and the recent n-period high/low
range. In comparison, the SMI shows where the close is relative
to the midpoint of the same range. The SMI ranges between +100 and
-100 and is somewhat less erratic than a Stochastic Oscillator over
the same period. The SMI is used here in conjunction with the Chande
Momentum Oscillator.
Definitions, Formulas:
Begin by selecting the desired range. We use n
= 10.
Then calculate the midpoint price M of the highest high and the
lowest low in the range:
M = (HighMAX + LowMIN)
/ 2
where
HighMAX = the highest high in
the range
LowMIN = the lowest low in the
range
Next calculate the difference (or “distance”) D of today’s closing
price from the midpoint of the range:
D = CPTODAY – M
where CPTODAY = today’s closing
price
Then smooth the value of D twice with an exponential
moving average. We use a three-period EMA:
DS1 = EMA(3)(D)
DS2 = EMA(3)(DS1)
Next, smooth the difference between the maximum high and minimum
low twice, using the same EMA as before, and divide the second smoothed
result by 2:
DHL = EMA(3)(HighMAX - LowMIN)
DHL2 = EMA(3)(DHL) / 2
Finally, calculate the SMI:
SMITODAY = 100 * (DS2
/ DHL2)
Positive Development Calculation:
For this TAI, a new positive development (NPD)
occurs when either of the following conditions holds:
(1) SMI x+ EMA(3)(SMI)
This is the so-called “signal line crossover.”
where EMA(3)(SMI) is the signal line.
OR
(2) SMI x+ -40 AND the Chande Momentum
Oscillator > 30
This is the so-called “trend up oversold breakout.” The first condition
has been called “recovery from being oversold” while the second
indicates a strong positive trend.
This TAI is no longer positive when either of the following conditions
holds:
(1) SMI x- EMA(3)(SMI) That is, the SMI crosses under the signal
line.
OR
(2) ChanMo x- 25 That is, the Chande
Momentum Oscillator crosses under 25.
If this TAI is still positive tomorrow, it will no longer be new,
but will be a cumulative positive development (CPD)
.
If this TAI was a new positive development (NPD)
yesterday, and is still positive today, then it becomes a cumulative
positive development (CPD)
.
History:
William Blau developed the SMI, which was introduced
in the January 1993 issue of Technical Analysis of Stocks &
Commodities magazine. It provides a modification of the Stochastic
Oscillator TAI. The Stochastic Oscillator shows the distance
between the current close and the recent n-period high/low
range. In comparison, the SMI shows where the close is relative
to the midpoint of the same range. The SMI ranges between +100 and
-100 and is somewhat less erratic than a Stochastic Oscillator over
the same period.
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