The Stochastic Momentum Index (SMI) measures distance between the current price and the midpoint of a price range, normalised for volatility. It signals momentum and overbought/oversold conditions. Here is how to use it.
What the SMI Does
Unlike the classic Stochastic, which uses the full range, the SMI measures where price sits relative to a smoothed \$midpoint' of the range — giving a cleaner momentum read.
Signals to Watch
- Overbought/oversold: extremes (e.g. above +40 / below -40) hint at reversals.
- Centre-line cross: crossing above/below zero confirms direction.
- Divergence: price making new highs with lower SMI warns of weakening momentum.
Using It in a Strategy
Combine SMI with a trend filter (EMA or structure) and price action; enter on pullbacks with a stop. It works in ranging and trending regimes but shines as a timing filter.
FAQ
Is SMI better than RSI?
Different — SMI is smoother; use whichever fits your style and backtests best.
Can SMI be automated?
Yes, it is available in most platforms and works in scripts/EAs.
Related: RSI-SMA Strategy and Strategy Optimization.
Disclaimer: Educational; trading is risky.