In the stock market, traders seek a balance between minimizing risk and maximizing returns. They create strategies and tactics to take advantage of the unstable market. Experienced traders rely on objective data to help with their analysis. Here you will learn about Smart Money Index (SMI), what it has to offer, and how to use it.
What is the Smart Money Index?
In the 1980s, Lynn Elgert described and originated SMI, also known as the Smart Money Flow Index. But Don Hayes, a rocket scientist, popularized the index during the 1990s.
SMI uses technical analysis to measure the market momentum of investors during the first 30 minutes versus the last hour. It gauges the difference in investing behaviors based on this formula:
Yesterday’s SMI: opening gain or loss + last hour gain or loss = current/today’s SMI
How to use the Smart Money Index
Although a standard system to use the SMI is not defined, you can use it to learn when the market is having bullish or bearish trend momentum. The SMI identifies or confirms a stock market trend when the market moves align with the SMI. Traders use this index to look for confirmations indicating the trend might possibly continue.
What does Smart Money Index have to offer?
Inputs
Real-time swing points and structures
SMI searches, analyzes, and illustrates the lows and highs of a trend, break of structures (BOS), and change of character (ChoCh), which indicate a continuation or a change in the market trend flow, as well as the key lows and high points. A BOS is formed when the previous lower low is broken in a bearish trend or if the previous higher high is broken in a bullish trend. And if the previous higher low is broken in a bullish trend, or if a lower high is broken in a bearish trend, a CHoCH occurs. Here is an example:
Swing Order Blocks
An order refers to a price zone on the chart where significant buying or selling activity has occurred. Investors often identify these zones by a strong surge in trading volume, believing them to represent areas where institutional traders have entered the market with large orders.
Equal Low (EQL): This refers to a situation where the price of a financial instrument, such as a stock or an index, reaches a low point that is equal to or nearly equal to a previous low point. In technical analysis, traders may interpret an EQL as a potential signal of market support or a reversal point.
Equal High (EQH): On the other hand, “Equal High” refers to a situation where the price of a financial instrument reaches a high point that is equal to or nearly equal to a previous high point. In technical analysis, traders may view an EQH as a potential signal of resistance or a possible reversal in the market trend.
Premium and Discount Zones
Smart money also analyzes chart zones where the price is near the premium or discount zone. In the premium zone, the current market price is higher than the average price paid by institutional investors. In contrast, a discound zone means that the current market price is lower than the average price paid by institutional investors.
Customization
With Smart Money Index, you can also personalize the style and visibility as you prefer. You can adjust the color, size, opacity, and many other things. Listed bellow we recommend the books:
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