Direct Answer
William Blau's SMI measures where the close sits relative to the midpoint of the recent high-low range rather than relative to the low. The distance and the range are both double-smoothed, giving a value from -100 to +100. Positive values mean the close is above the range midpoint and negative values below it.
Stochastic Momentum Index: Formula, Meaning, Signals, Examples and How to Use It
How Is Stochastic Momentum Index Calculated?
William Blau's SMI measures where the close sits relative to the midpoint of the recent high-low range rather than relative to the low. The distance and the range are both double-smoothed, giving a value from -100 to +100.
Formula: SMI = 100 * EMA(EMA(Close - (HH + LL)/2, a), b) / (0.5 * EMA(EMA(HH - LL, a), b)), with HH and LL the highest high and lowest low over n bars
Inputs:
- High, low and close prices
- Lookback n for the high-low range
- Two smoothing periods a and b
Worked example. With a smoothed distance from the midpoint of 6 and a smoothed range of 20, the SMI is 60.0. The inputs are illustrative numbers, not market data.
Reading it. Positive values mean the close is above the range midpoint and negative values below it. Readings near +100 or -100 mean the close is at the top or bottom of the range. Overbought and oversold levels are chosen by users.
Limits. Double smoothing makes it smoother than the ordinary stochastic but slower to react. The values depend on three parameters, and extreme readings can persist in a strong trend.
What is Stochastic Momentum Index?
William Blau's SMI measures where the close sits relative to the midpoint of the recent high-low range rather than relative to the low. The distance and the range are both double-smoothed, giving a value from -100 to +100.
How to use Stochastic Momentum Index
Positive values mean the close is above the range midpoint and negative values below it. Readings near +100 or -100 mean the close is at the top or bottom of the range. Overbought and oversold levels are chosen by users. A reading alone is never a buy or sell signal; it needs context from price structure, volume, volatility and the broader market regime.
Strengths
- Measuring the close against the midpoint of the range rather than the low centers the scale on zero and shows distance above or below the middle.
- The range in the denominator is also double-smoothed, so a single wide bar has less effect on the scale than in the ordinary stochastic.
- Reproducible when the formula and data convention are fixed.
Weaknesses and limitations
- The reference is the n-bar midpoint, so the reading cannot show where price sits against a longer range than the chosen window.
- Fixed overbought and oversold lines drawn near the edges are user conventions, not outputs of the formula.
- Correlated indicators can create false confidence by repeating the same underlying information.
Editorial and risk note
This page is educational content, not individualized investment advice. It should not imply guaranteed prediction, accuracy or outperformance.
Frequently Asked Questions
Is Stochastic Momentum Index a buy or sell signal?
No. Positive values mean the close is above the range midpoint and negative values below it. Double smoothing makes it smoother than the ordinary stochastic but slower to react. A trade built on it still needs a trigger, an invalidation rule, a position size and realistic execution assumptions.
What is the best setting for Stochastic Momentum Index?
Stochastic Momentum Index takes these inputs: high, low and close prices; lookback n for the high-low range; two smoothing periods a and b. There is no universal best setting for the tunable ones, so test them across instruments, regimes and out-of-sample periods and favor stable parameter regions over one historical winner.
Can Stochastic Momentum Index be used by itself?
Double smoothing makes it smoother than the ordinary stochastic but slower to react. The values depend on three parameters, and extreme readings can persist in a strong trend. For that reason it is read next to measures of direction, participation, valuation, liquidity and risk, not alone.
Does Stochastic Momentum Index work on every timeframe?
The calculation (SMI = 100 * EMA(EMA(Close - (HH + LL)/2, a), b) / (0.5 * EMA(EMA(HH - LL, a), b)), with HH and LL the highest high and lowest low over n bars) can be run on any bar size, but behavior is not portable: a reading on a five-minute chart describes a very different market window from the same reading on a daily chart. Validate the exact timeframe before relying on it.
Why does Stochastic Momentum Index give false signals?
The reference is the n-bar midpoint, so the reading cannot show where price sits against a longer range than the chosen window. Fixed overbought and oversold lines drawn near the edges are user conventions, not outputs of the formula. Lag, noise and regime changes add to this, because market participants react to new information after the reading is calculated.
How should Stochastic Momentum Index be backtested?
Rebuild Stochastic Momentum Index from high, low and close prices using point-in-time data, write the rules before testing, include delisted securities where relevant, model realistic fills and costs, reserve a validation sample and compare with a simpler baseline.