Smart money index

Smart money index (SMI) or smart money flow index is a technical analysis indicator demonstrating investors' sentiment. The index was invented and popularized by money manager Don Hays.^[1] The indicator is based on intra-day price patterns.^[2]

The main idea is that the majority of traders (emotional, news-driven) overreact at the beginning of the trading day because of the overnight news and economic data. There is also a lot of buying on market orders and short covering at the opening. Smart, experienced investors start trading closer to the end of the day having the opportunity to evaluate market performance. Therefore, the basic strategy is to bet against the morning price trend and bet with the evening price trend. The SMI may be calculated for many markets and market indices (S&P 500, DJIA, etc.)

Basic formula

The basic formula for SMI is:

Today's SMI reading = yesterday's SMI – opening gain or loss + last hour change

For example, the SMI closed yesterday at 10000. During the first 30 minutes of today's trading, the DJIA has gained a total of 100 points. During the final hour, the DJIA has lost 80 points. So, today's SMI is 10000 – 100 + -80 = 9820.

Interpretation

The SMI sends no clear signal whether the market is bullish or bearish. There are also no fixed absolute or relative readings signaling about the trend. Traders need to look at the SMI dynamics relative to that of the market. If, for example, SMI rises sharply when the market falls, this fact would mean that smart money is buying, and the market is to revert to an uptrend soon. The opposite situation is also true. A rapidly falling SMI during a bullish market means that smart money is selling and that market is to revert to a downtrend soon. The SMI is, therefore, a trend-based indicator.

References

↑ "Smart Money Index (SMI)". SentimenTrader. 2006. Retrieved 16 July 2013.
↑ Hertler Market Signal

External links

Technical analysis

Concepts

Charts

Patterns

Chart

Candlestick

Simple	Doji Hammer Hanging man Inverted hammer Marubozu Shooting star Spinning top

Complex	Hikkake pattern Morning star Three Black Crows Three white soldiers

Indicators

Support & resistance	Bottom Fibonacci retracement Pivot point (PP) Top

Trend	Average directional index (A.D.X.) Commodity channel index (CCI) Detrended price oscillator (DPO) Know sure thing oscillator (KST) Ichimoku Kinkō Hyō Moving average convergence/divergence (MACD) Mass index Moving average (MA) Parabolic SAR (SAR) Smart money index (SMI) Trend line Trix Vortex Indicator (VI)

Momentum	Money flow index (MFI) Relative strength index (RSI) Stochastic oscillator True strength index (TSI) Ultimate oscillator Williams %R (%R)

Volume	Accumulation/distribution line Ease of movement (EMV) Force index (FI) Negative volume index (NVI) On-balance volume (OBV) Put/call ratio (PCR) Volume–price trend (VPT)

Volatility	Average true range (ATR) Bollinger Bands (BB) Donchian channel Keltner channel CBOE Market Volatility Index (VIX) Standard deviation (σ)

Breadth	Advance–decline line (ADL) Arms index (TRIN) McClellan oscillator

Other	Coppock curve Ulcer index

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