SMI Oil Trading Technical Analysis & SMI Trading Signals

Developed by William Blau.

The SMI indicator is an adaptation of the classic Stochastic Oscillator indicator which smoothes out the stochastic trading indicator oscillations.

Construction of SMI

This technical indicator is calculated by comparing the crude oil price relative to the average of an n number of periods.

Then instead of plotting these values directly, smoothing using an Exponential Moving Average is applied & then the values drawn to form the SMI.

When the closing crude oil price is greater than the average of the range, the SMI will move upward.

When the closing crude oil price is less than the average of the range, the SMI will move down.

This oscillator ranges between the values of +100 and -100, this indicator is also less prone to whipsaws compared to the stochastic oscillator.

Oil Trading Technical Analysis & Generating Trading Signals

Buy and Sell Oil Signals/ Crossover Signals

The SMI can be used to generate buy and sell crude oil signals using the method shown below, Buy when the SMI is heading upwards and sell when its heading downwards.

Buy & Sell Oil Signals/ Crossover Signals

Overbought/Oversold Level Oil Trading Crossovers

• Overbought levels above +40
• Oversold levels below -40

Buy signal is generated when this oscillator falls below over-sold level and then rises above this level & starts to move upward.

Sell Oil Signal is generated when this oscillator rises above overbought level and then falls below this level & starts to move downward.

Divergence Crude Oil Trading

The example explained below shows a bearish classic divergence between the crude oil price & the SMI. When the SMI showed this divergence the crude oil price oil trend reversed and started to move in a downward direction.

Bearish Oil Trading Divergence