Stochastic Momentum Index _ UCSgears

The Stochastic Momentum Index ( SMI             ) was introduced by William Blau in 1993 as a way to clarify the traditional stochastic oscillator. SMI             helps you see where the current close has taken place relative to the midpoint of the recent high to low range is based on price change in relation to the range of the price. This is a range based indicator, when used right. It can help momentum changes.

For those looking for help understanding this -

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//Stochastic Momentum Index
//Code by UCSgears
study("UCS_Stochastic Momentum Index", shorttitle = "UCS_SMI", overlay=false)
a = input(5, "Percent K Length")
b = input(3, "Percent D Length")
// Range Calculation
ll = lowest (low, a)
hh = highest (high, a)
diff = hh - ll
rdiff = close - (hh+ll)/2
// Nested Moving Average for smoother curves
avgrel = ema(ema(rdiff,b),b)
avgdiff = ema(ema(diff,b),b)
// SMI calculations
SMI = avgdiff != 0 ? (avgrel/(avgdiff/2)*100) : 0
SMIsignal = ema(SMI,b)
plot(SMI, title = "Stochastic Momentum Index")
plot(SMIsignal, color= red, title = "SMI Signal Line")
plot(40, color = red, title = "Over Bought")
plot(-40, color = green, title = "Over Sold")
plot(0, color = blue, title = "Zero Line")
Thank you UCS Gears for sharing William Blau's 'Stochastic Momentum Index' indicator. I noticed a small similarity to the 'Composite Momentum Index' by Tushar Chande, so I created a comparison. Both indicators in my test use the default signal period 5 and a smoothing period of 3:


(I removed LazyBears' cool color feature for a clearer comparison)






My conclusion: There does not seem to be a clear winner in this comparison, so my recommendation would be to use both indicators to watch the momentum. Here is the 'Composite Momentum Index' coded by LazyBear:
Composite Momentum Index [LazyBear]

P.S. Both technical analysts are engineers. Tushar Chande holds a Ph.D. in metallurgical engineering from the University of Illinois. And William Blau holds a bachelor's degree in electrical engineering from NYU and a master's in systems engineering and operations research from the University of Pennsylvania.
+1 Reply
Engineers are trained to trust in equations, derived from statistical probability. You can never find an equation without a constant. Constants are mostly derived by (certain cases ignored) converting a variable of a non linear equation to a mere number or non variable constant, duh!!!!. This conversion happens based on the statistical back testing. To be specific the non linearity observed is distributed in a way to make it linear, that simplified the equation yet produces results. That was my last course lesson I attended before dropped my Ph.d. E=mc2 is a famous equation, This is the best simplification one can find in today's scientific world. There is no other equation you can find that is this simple and working. Atleast, i did not find.

All the greatest gamblers and traders had a system to line the probability in their favor with or without an indicator. So why not we do the same. Secret to the rich is not behind the indicator. Its is behind the statistical odds of the indicator working. Honestly, Probability and Statistics classes was boring and i thought it was useless in my high school, now the class i hated makes me more money than my Engineering Degree do. I still hold my job and trade, simply because the Job make me sharper with my skills, passion towards engineering and risk free income. To get to where I can trade and work, I needed a solid plan and a good time management, that needed practice. It was a rough ride, very slow, Frustrating and offered many sleepless nights, but I made it.. lol.

One thing an engineering degree did not offer me is, controlling emotions, this can be achieved by Yoga (any form of mental preparation). I am still a rookie here, This really turned my trading, ofcourse trustworthy people, offering advice. My rules for 6 of my strategies are simple, it is stupid as well. If i give it away, many will say, some of my variables are not co-related. That is the point, trading is not a linear system, nothing in the world is linear (human emotion). We and our science degrees teach us linearity on daily basis. Trading is Dynamic and it is very dynamic that all the Open loop systems have failed so many times (for which people pay $10 - $10k), only closed loop systems have proven to be profitable (HFT systems).

To build a process of a personal closed loop systems, you need statistics (trade logs). Using the Stats refine yourself again and again until, one can decide when to trade a system and when not to. Again, simplify the system to where it takes 15 mins to pick tickers. Thats an awful lot of time actually. Simple systems are easier to remember and can execute quicker. Be it Blackjack or Trading, the game is same. ;) Now the question I leave anybody with is, Is the stock market rigged? Is gambling rigged?

Physics have broken Roulette , Statistics have broken Crabs in a casino. You can beat Roulette with enough practice (The dealer is well trained), Just that there are many variables, you need to focus. You can beat the stockmarket with training as well. Its gonna be hard for someone starting with limited cash. I can help you shape your trading journey if needed, provided if time permits.

As usual Good Luck.
btw, I don't believe in Luck. Its just a joy for me to give away luck ;) lol
+3 Reply
don't quote me on spelling errors. I can clearly see it.. ;)
ChartArt ucsgears
The more I analyze charts and experiment with indicators the more I also see that physics and statistics can greatly turn the odds in your favor. I agree that controlling emotions is the hardest part. It's an area I'm still struggling with. In the past my main problem was to accept that I was wrong and to cut the loss. My current problem is that if I'm right that I still try too hard to trade in the then opposite direction, although my initial expectation came fully true. So I mess up very good trades, just because I have not enough confidence that my early idea was right - when I see the rest of the market still posting charts expecting the opposite direction to happen. I assume even an Engineering Degree wouldn't help here :D

It basically comes down to timing. You don't want to be positioned too early into the next trend change, because that is emotionally painful to see the old trend still going against you (this can mostly happen using momentum based indicators like above). And you don't want to be so late to the game that all large profit potentials are already gone and the odds of the market changing the trend again has started to increase. Therefore I'm currently trying to get the timing right. When is the high risk worth getting in the position so early and when is waiting for more confirmation necessary to reduce that risk.
Timing is critical. I do have a 10-30 min window to place a trade, after a trigger. It depends, on what strategy i am playing. Some trade, i just ignore the timing, place a Good till Cancel trade with a hidden order / Conditional orders. You can see all the variables here. There are so many variable in placing a trade, which can create those p/l swings. When playing options.
Thanks for the comparison. SMI is very much a ROC just that it is smooth by adjusting parameters. ROC is the basis of any Momentum Indicator. Understanding ROC and its behavior can help understanding others.
ChartArt ucsgears
Therefore SMI is the smoothed rate-of-change of the stochastic indicator?
Thanks for this, was looking for it after seeing Anne-Marie Baiynd demo on youtube using Metastock version. She also shows plot of 25, -25 where signals in between are considered sideways unreliable.

Any tip to remove white dot vertical intervals from display?
Nice - thank you
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