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SMI Ergodic Indicator (SMII)

What the SMI Ergodic Indicator measures, how its two lines are read, its settings on MillionChart and a worked example on gold.

The SMI Ergodic Indicator (SMII) is William Blau's True Strength Index drawn as a ratio: double-smoothed price change divided by double-smoothed absolute price change, between −1 and +1, with an exponential signal line. It is drawn in its own pane around a zero line. "Ergodic" is Blau's word for a momentum indicator smoothed enough to show the trend; it comes from his book Momentum, Direction, and Divergence (1995).

SMII (20, 5, 5) under gold, daily candles
SMII (20, 5, 5) under gold, daily candles

What it shows#

  • SMI — the main line, in its own pane. Above zero price has been rising on balance over the smoothing lengths, below zero falling; +1 would mean every bar closed higher, −1 that every bar closed lower. Values are shown with three decimals.
  • Signal — a 5-bar exponential moving average of the SMI; the two lines crossing is the usual trigger.
  • Zero — a dotted level at 0.

How it is calculated#

Each bar's change in the close is smoothed with an exponential moving average over the Long length (20), then again over the Short length (5); the absolute value of the change is smoothed the same way. The SMI is the first divided by the second: the net movement as a fraction of the total movement. The Signal is an exponential moving average of the SMI over the Signal line length. The indicator always uses the close and has no source setting; it is the True Strength Index divided by 100, with shorter defaults.

How traders use it#

  • SMI crossing above its signal line is a buy trigger, crossing below a sell trigger; most traders take only the crosses on the side of zero that agrees with the trend.
  • A cross of zero is slower than a signal cross and confirms a change of direction.
  • Divergence — a new high in price with a lower SMI peak, or the reverse — is the reading Blau's book title points at.
  • The short defaults (20, 5, 5) make it faster than the TSI's 25, 13, 13; lengthen them for a cleaner line on noisy intraday charts.
  • Watch out for: the lines cross often in a flat market, and a sharp reversal is seen a few bars late. The SMI Ergodic Oscillator shows the gap between the two lines as a histogram.

Settings#

SettingDefaultWhat it changes
Long length20The first exponential smoothing of the price changes; longer is smoother and slower
Short length5The second smoothing, applied to the result of the first
Signal line length5Bars of the exponential moving average that makes the signal line
Colours and style—The colours of the SMI and Signal lines and of the Zero line

Example on gold#

Suppose gold has rallied from $4,200 to $4,320 and the SMI has been above zero for two weeks, peaking near +0.4. Price drifts sideways around $4,300 and the SMI slips below its signal line while still positive. For example, a trader who is long could treat that as a cue to protect profit, not yet to reverse: a cross back above the signal line with the SMI still above zero would say the pause is over. The SMI falling through zero would be the stronger sign that the trend has turned.

Add it to your chart#

  1. Click Indicators in the top strip (on the Pro screen you can press I).
  2. Type smii and click the indicator.
  3. Click its chip in the legend to open the Inspector and change the settings; drag the chip to reorder; the dot hides it; × removes it.