Stochastic Momentum Index: Stochastic measured from the middle

What it measures

The SMI measures where the close sits relative to the midpoint of the recent high-low range, rather than relative to the low as the ordinary Stochastic does.

That single change makes it symmetric around zero: positive means the close is in the upper half of the range, negative means the lower half.

It is then double-smoothed, which makes it substantially cleaner than the Stochastic it derives from.

How it is calculated

These are the steps Basis performs, verified against the published definition.

1. 1

   Find the highest high and lowest low over the period, and take their midpoint.

2. 2

   Compute the distance from the close to that midpoint, and double-smooth it.

3. 3

   Double-smooth half the high-low range the same way.

4. 4

   Divide the first by the second and multiply by one hundred.

Settings

A range period around ten to thirteen with smoothing of three and three is common. Lengthening the range period makes the midpoint more stable and the whole line slower.

How to read it

• Zero is meaningful here in a way it is not on the Stochastic — it is the middle of the range, so crossings are genuine shifts in position.
• Plus and minus forty are the conventional stretched levels rather than eighty and twenty.
• Signal-line crossings work the same way as on the Stochastic but occur far less often.
• It stays pinned at extremes in a strong trend, exactly as the Stochastic does, and this is not a defect to be filtered away.
• The practical improvement over the Stochastic shows up in ranging markets, where the SMI oscillates cleanly around zero and the Stochastic rattles between its extremes. If a market is genuinely range-bound, this is the better of the two; if it is trending, neither is the right tool.

Where it misleads

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