Stochastic Momentum Index (SMI) on Gold

What it shows

A blue SMI line and an orange, slower copy of it sit below the candles, between grey marks at 40 and -40. Blue above 40 means the close keeps landing near the top of a 10-candle range.

How Pravex works it out

1. Find the highest high and the lowest low over the last 10 candles (the high-low window).
2. Distance = close − the middle of that range, where the middle is (highest + lowest) ÷ 2. Range = highest − lowest.
3. Smooth the distance with an EMA over the smoothing passes length, then smooth the result with a second EMA of the same length. Do the same to the range.
4. SMI = 200 × smoothed distance ÷ smoothed range.
5. Worked with invented values: a smoothed distance of 3 against a smoothed range of 10 gives 200 × 3 ÷ 10 = +60.
6. A 3-candle EMA of the blue values draws the orange companion line.

Settings

Setting	Default	What changing it does
High-low window	10	Candles in the range the close is measured against. A longer window makes the range wider, so the same close sits nearer the middle and the line moves less.
Smoothing passes length	3	The length of both smoothing passes. A higher value gives a calmer line that lags more.
Signal average length	3	How smooth the orange line is. A longer length keeps it further behind the blue one, so crosses between them come later.

How traders read it

Above the 40 mark, closes have stayed in the upper part of the range; below -40, in the lower part. Waiting for the line to turn back through 40 or -40 filters out a lot of first touches that keep going.

Blue crossing orange is the second signal people use. The orange line is only a 3-candle EMA of the blue, so crosses are frequent and many of them are noise.

Zero has no line on the pane, but it is the middle of the range. A line that stays above zero for a stretch says closes keep landing in the top half of the range.

When it misleads

In a strong trend the SMI can sit beyond 40 or -40 for a long time, so a touch of the band is not a turning point by itself. The line only compares the close with the recent range, not with a fixed amount of movement. In calm gold hours small candles still fill a small range and can push the line to its extremes with no real move behind it.

Questions and answers

What do SMI 40 and -40 mean?

They are the two grey marks for stretched readings. Above 40 the close has been sitting high in its recent range, below -40 low in it. Neither is a prediction of what comes next.

Should I lengthen the SMI window on gold?

Pravex opens it at 10, 3 and 3. A window of 20 or so gives a slower line that suits daily gold candles; a shorter one reacts quicker on 15-minute charts but touches 40 and -40 far more often.

Is an SMI of 0 bearish?

Neither. The smoothed distance is zero, so the close sits at the middle of the recent high-low range. It says nothing about how wide that range is.

Why does the SMI have two lines?

The blue line is the SMI itself. The orange line is an EMA of it, a slower copy that the blue line crosses when its direction changes.

Related: SMI Ergodic Indicator, Fisher Transform, Connors RSI, Stochastic, every indicator.