Trading signals are instrumental when making trading decisions, such as when to enter a market or exit. William Blau’s idea of boosting traders while making trade decisions came up with an Ergodic indicator that traces its foundation from the True strength Index because it uses a signal line in its application.
In a nutshell, the SMI Ergodic Indicator is defined as a stochastic momentum index that works by giving double moving averages of price minus the previous price over two time frames. With these signals present in a market, traders can receive helpful insights into the market conditions.
The signal line, which is an EMA of the SMI, is plotting to assist in triggering trade signals. Depending on a trader’s preference, adjustable guides are provided to streamline the signals in order to achieve the desired performance. Also, a trader may decide to change inputs. (Look at the historical prices of several stocks and trading assets on Tradinview’s charts)
Features of SMI Ergodic Indicator
- It uses a signal line
- It makes use of double moving averages
- Uses two-time frames in determining prices
- Works the same as True Strength Index
Calculations of SMI Ergodic Indicator
When calculating the SMI Ergodic Indicator, the following is considered;
- Traders can set the price, but the closing price is set as the default.
- The EMA method is used as a default.
- The previous price is applied as prevP
- Abs represents the absolute value
- The moving average is represented by ma=index = current bar number
- MT and LT are used to represent more than and less than equations
- After determining all the variables needed in the calculation of the SMI Ergodic Indicator, the SMI and the signal line graphs are plotted.
What are the signals represented by SMI Ergodic Indicator?
Traders rely on the signals to make decisions while making efforts to maximize their profits in any given market. The following signals are given by the indicator to guide traders. The signals are as follows;
- The sell signal
- The buy signal
- The high sell signal
- The low buy signal
How to trade with SMI Ergodic Indicator
With an aim to maintain high quality and an improved success rate when using the indicator, it is prudent for a trader to pay attention to the bottom of the Stochastic Momentum Index. The trader can obtain a more insightful trading mechanism by adjusting these guides due to the efficiency offered.
Where SMI has crossed the signal line, there is an impression that there is a change in a trend. A trader receives a sell signal when the SMI is above the top guide and consequently crosses below the SMI signal line. On the other hand, a trader gets a buy signal when SMI has crossed the signal line and is below the bottom guide. For more insight about trading, subscribe to tradingview.com and join the conversation with other traders.