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# Stochastic Momentum Index Indicator Formula, Strategy

• Technical Indicators First of all, Stochastic Momentum Index Indicator is an advancement in the Stochastic Oscillator. Stochastic Oscillator is primarily used to calculate the distance between the Current Close and Recent High/Low Range for n-period. This indicator shows the distance of the current close relative to the centre of the High/Low Range. In January 1993, William Blau originated Stochastic Momentum Index publication of “Technical Analysis of Stocks & Commodities” Magazine. This is reasonably less unpredictable than Stochastic Oscillator over a single period. This indicator normally ranges in between +100 and -100. Sometimes, traders use the Stochastic Momentum Oscillator in conjunction with the Tushar Chande Momentum Oscillator.

If traders want to know more about the Stochastic Momentum Index (SMI) indicator, then they can find it in the STUDIES section of Zerodha Kite. They can also use the Kite Mobile App to find out this Stochastic Momentum Index indicator. Check the image below to understand how to attach the SMI in HDFC Bank share price chart. You can attach this indicator probably on to any charts likes daily, weekly, monthly or intraday.

## Calculation of Stochastic Momentum Index Indicator :

1. M – midpoint price of the highest high and the lowest low in the selected  range :
M = (HighMAX + LowMIN) /2.
where,
HighMAX = the highest high in the range.
LowMIN = the lowest low in the range.
2. D – the difference of bar’s closing price from the midpoint of the range :
D = Close – M.
3. Ds – double Exponential Moving Average (EMA) applied to D values calculated :
Ds = EMA (EMA(D)).
4. Dhl – double EMA applied to the difference between highest high and lowest low in the selected period applied to Dhl values calculated :
Dhl = EMA (EMA ((HighMAX – LowMIN))).
5. Stochastic Momentum Index (SMI) as ratio between Ds and Dhl :
SMI = 100 * (Ds / Dhl).
6. This calculation is also the same as with Stochastics Oscillator, additional Signal Line is calculated as EMA applied to the SMI.

## Advantages of Stochastic Momentum Index Indicator :

1. This SMI is less unpredictable than Stochastic Oscillator outcome for the same period and that is believe by majority of technicians.
2. Stochastic Momentum Index indicates an advance indication of possible shifts in momentum (Price) close to critical points and this allows traders to time their moves in the market.
3. In this indicator, Entry and Exit with maximum Profits is no longer an issue due to the predictability.

## Disadvantages of Stochastic Momentum Index Indicator :

1. Stochastic Momentum Index is also unable to predict trendiness. This indicator also makes a lot of confusion in the mind of traders and traders often get trapped by seeing the Extreme Positions indicated by SMI.
2. In SMI which only predicts short-term extreme positions with the traders also must use trendiness indicators like CMO (Chande Momentum Oscillator) or R-Squared Indicator to predict future trends along.
3. Stochastic Momentum Index indicator cannot generate trade signals in trending markets. Although, oscillators have to be used to generate the direction of the trend. Traders can then make decisions on the basis of the direction of the trend in the future.

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