MAXIMIZING THE POWER OF THE SMI –

THE STOCHASTIC MOMENTUM INDEX

Anne-Marie Baiynd, Trader

CEO, TheTradingBook.com
Twitter @annemarietrades
annemarie@thetradingbook.com
THE BEST TECHNICAL INDICATORS

The indicators that lie to you

the least amount of times
THE BEST TECHNICAL INDICATORS

•
• Its formula is clearly related to price
• Forward pricing
• Sensitive to market changes
• Easily interpreted
THE STOCHASTIC MOMENTUM INDEX

•
• Is based on the change in price
• Specifically, the change in price position relative to a range in price
• Is very sensitive to price changes
• Plots the anticipation of a change in trend
• Relative to change in price position from the range over time
• Displayed by inflection
• Displays trend by location
• Displays constant or accelerating momentum
 DISPLAYING SMI STRENGTH

•
 DISPLAYING SMI STRENGTH

•
 DISPLAYING SMI STRENGTH

Where are the nominal trades ?

 DISPLAYING SMI STRENGTH

~ -15 to ~ 15

Signals in the neutral zones are suspect and lead to negligible trades
 DISPLAYING SMI STRENGTH

Trend in the SMI means acceleration of momentum

 DISPLAYING SMI STRENGTH

•
 DISPLAYING SMI STRENGTH

What do inflections mean here in the trend?

 DISPLAYING SMI STRENGTH

What do inflections mean here in the trend?

 TRADING QUIZ

What can we estimate about the chart ?

What is the likely trend?

What is the likely inflection telling us the

What do inflections mean
chart is doing ? here in the trend?
 TRADING QUIZ

Test of support

What’s next ?
If I’m long, should I leave this trade completely?
If I’m not in this trade, should I short this?
Is there a telltale signal of what might be next?
 TRADING QUIZ

Test of support

Technical divergence –

If I see technical divergence, where

should I move the support to preserve
profit?
 TRADING QUIZ

New support

Where is this first inflection ?

 TRADING QUIZ

New support

The neutral zone –

It is best to be very cautious

around neutral zones
 TRADING QUIZ

What do you think the SMI should

be doing?
 TRADING QUIZ

•
 TAKEAWAYS

•
• It is NOT just an overbought/oversold formation
• ‘Overbought’ levels can mean trending longs
• ‘Oversold’ levels can mean trending shorts
• Don’t use momentum indicators to step in front of reversals
• Simply because it inflects, it does not mean reversal of trend
• Stay away from inflection triggers in the neutral zone
• A very high or very low reading does not mean reversal
• Pay attention to levels of support and resistance with trend
THE TRADING BOOK

AnneMarie@thetradingbook.com
info@thetradingbook.com