Stochastic Momentum Index (SMI) of Money Flow Index (MFI)

The Stochastic Momentum Index of Money Flow Index (SMI of MFI) was chosen as an Editors' Pick in April 2023, achieving over 2750 boosts to date.

The indicator is offered free of charge and can be freely modified for commercial or non-commercial use, as long as due credits are mentioned. The indicator can be accessed on the TradingView platform.

The SMI measures price momentum by comparing the current close to the high-low range over a period of time. The MFI measures buying and selling pressure using price and volume.

Combining the SMI and MFI provides a more comprehensive view of price direction and market strength compared to using either indicator alone. One way to do this is to use the MFI as an input to the SMI calculation instead of just price, to measure momentum based on money flow.

Key signals to watch:

🟢The SMI crossing above -40 is a potential buy signal, while crossing below +40 is a potential sell signal.

🟢Divergence between the SMI/MFI and price action can foreshadow potential trend reversals. Negative divergence (rising price but falling SMI/MFI) suggests weakening momentum, while positive divergence (falling price but rising SMI/MFI) indicates building momentum.

The SMI/MFI combination can be a valuable tool as part of a broader trading strategy, but should be used alongside other forms of analysis. Adjusting the indicator timeframes can help suit specific trading styles and goals.

In summary, while the SMI/MFI provides helpful insights into price momentum and strength, it is not a standalone trading solution. As the quote warns, underestimating one's opponents and not preparing sufficiently will lead to defeat. Traders must use the SMI/MFI wisely in combination with other tools and analysis to make sound trading decisions.