SMI Oil Technical Analysis and SMI Trading Signals

Developed by William Blau.

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

Construction of SMI

This oil 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 and 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 & -100, this indicator is also less prone to whipsaws compared to the stochastic oscillator.

Crude Oil Technical Analysis & How to Generate Trading Signals

Buy & Sell Oil Trading Signals/ Crossover Signals

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

Buy & Sell Oil Trading Signals/ Crossover Signals

Overbought/Oversold Level Crude Trading Crossovers

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

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

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

Divergence Oil

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

Bearish Crude Trading Divergence