MAXIMIZING THE POWER OF THE SMI – THE STOCHASTIC MOMENTUM INDEX Anne-Marie Baiynd, Trader CEO, TheTradingBook.com Twitter @annemarietrades [email protected]
MAXIMIZING THE POWER OF THE SMI – THE STOCHASTIC MOMENTUM INDEX
Anne-Marie Baiynd, Trader CEO, TheTradingBook.com Twitter @annemarietrades [email protected]
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
•
Signals in the neutral zones are suspect and lead to negligible trades
~ -15 to ~ 15
TRADING QUIZ
•
What do inflections mean here in the trend?
What can we estimate about the chart ? What is the likely trend? What is the likely inflection telling us the chart is doing ?
TRADING QUIZ
•
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?
Test of support
TRADING QUIZ
•
Technical divergence – If I see technical divergence, where should I move the support to preserve profit?
Test of support
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