The Stochastic Momentum Index (SMI) is a technical indicator that enhances the traditional stochastic oscillator by considering the closing price’s position relative to the midpoint (median) of the high-low range, rather than just the high and low points themselves. This adjustment, along with a double exponential smoothing process, helps in providing more reliable signals and is particularly useful for identifying divergence signals.

Syntax:

SMI[N, SS, DS](price)

• N: The length of the look-back period for the stochastic calculation.
• SS: The period for the first smoothing of the %K line.
• DS: The period for the double smoothing, which is applied to the smoothed %K line to get the %D line.
• price: The price input, typically the closing price.

Example:

mySMI = SMI[14,3,5](close)
IF mySMI > 40 THEN
    overbought = 1
    oversold = 0
ELSIF mySMI < -40 THEN
    overbought = 0
    oversold = -1
ELSE
    overbought = 0
    oversold = 0
ENDIF
RETURN overbought, oversold

This example demonstrates how to calculate the SMI for a 14-period look-back with a 3-period first smoothing and a 5-period second smoothing using the closing price. It then uses the SMI value to determine overbought or oversold conditions.

Additional Information:

The SMI indicator is particularly useful for identifying the momentum and potential reversal points in the price of an asset. By comparing the closing price to the median of the high and low, the SMI can provide a different perspective than traditional oscillators, which may help in spotting divergences between the price and momentum more clearly.