Composite & famousSMI Ergodic · SMI
William Blau's double-smoothed momentum oscillator paired with a signal line.
Works in most conditionsEngine-computed on a fixed sample series
What the SMI Ergodic Indicator is
The SMI Ergodic Indicator is a smooth momentum oscillator developed by William Blau, and it is essentially his True Strength Index (TSI) plotted together with a signal line. Its purpose is to measure the direction and strength of momentum while cutting out the jitter that plagues simpler oscillators, producing a clean line that swings around a zero level. The word ergodic is Blau's own label for the double-smoothed construction; in practice it just describes an unusually smooth momentum read. Because momentum is smoothed twice, the resulting line moves decisively rather than erratically, making its crossovers and divergences unusually easy to see. For a beginner, think of it as a heavily filtered momentum meter: above zero the market's momentum is net positive, below zero it is net negative, and a companion signal line provides the timing triggers.
How the SMI Ergodic is calculated
Start with one-bar momentum — today's close minus the prior close. Blau then smooths this momentum twice with successive exponential moving averages, a long one followed by a short one, to damp the noise. He does the same double smoothing to the absolute value of that momentum. The SMI Ergodic, which is the TSI, is 100 times the double-smoothed momentum divided by the double-smoothed absolute momentum, which scales it into a bounded oscillator centered on zero. Finally, a signal line, an exponential average of the SMI Ergodic itself, is plotted on top for crossover signals. Common default lengths are around 20 for the long smoothing, 5 for the short, and 5 for the signal, though Blau's original TSI used longer settings such as 25 and 13; the double smoothing is the essential idea regardless of the exact numbers.
Reading the SMI Ergodic, step by step
Read it on two axes: position relative to zero and the relationship to the signal line. Above zero, momentum is net positive and the bias is bullish; below zero, momentum is net negative and the bias is bearish. The primary trigger is the oscillator crossing its signal line — crossing up is a bullish momentum shift, crossing down bearish — much like a MACD signal cross but far smoother. Because the line is double-smoothed, its crossovers and its divergences against price are unusually clean and reliable-looking. A zero-line cross confirms a more substantial shift in the momentum regime. The trade-off for all this smoothness is timing: the signals are clear but they arrive a little later than a rawer oscillator would give.
Best timeframes and settings
The SMI Ergodic suits swing trading on 4-hour and daily charts, where its smoothness separates real momentum shifts from noise. Typical defaults are a long length near 20, a short length near 5, and a signal length near 5, though longer settings such as 25 and 13, Blau's original TSI, give an even smoother, slower line better for position trading. Shortening the smoothing lengths makes the oscillator faster and its crossovers more frequent but noisier; lengthening them makes it cleaner but later. Because it already carries two layers of smoothing, it is inherently a lagging-but-clean tool, so most traders keep it near the defaults and add a trend filter rather than chasing speed. The responsiveness-versus-noise trade-off lives mainly in the two smoothing lengths.
When and where to use it
The oscillator works in both trending and ranging conditions, using the zero line for trend bias and the signal cross for timing, but it is most valuable when there is enough directional movement to keep it away from the zero line. In quiet, flat markets the oscillator and its signal line tangle together near zero, producing crossovers with no edge. It applies to any liquid instrument with a clean close series across equities, futures, and forex. Avoid trading its crossovers when the line is flat and hovering around zero, which signals a directionless market. It is at its best confirming and timing entries within an established trend, where its clean crossovers align with the larger direction.
Strategies that use the SMI Ergodic
The core strategy uses the zero line for bias and the signal-line crossover for timing: in an uptrend, buy when the oscillator turns up through its signal line after a dip, and exit when it crosses back down. A zero-line strategy treats a cross above zero as confirmation of a bullish momentum regime for longs and a cross below as bearish, holding while the line stays on that side. A divergence strategy exploits the clean line — a price high unconfirmed by an SMI Ergodic high flags weakening momentum, and the subsequent signal-line cross triggers the trade. Across all three, a trend filter is important to ignore the crossovers that occur while the line sits flat around zero, which are the tool's main source of false signals.
Combining the SMI Ergodic with other indicators
Because it is a smooth momentum oscillator, the SMI Ergodic pairs well with a trend-defining tool — a moving average or ADX — that tells you when its crossovers are worth taking and when the market is too flat to trust them. Support and resistance levels give its signals a price context. It complements price-based trend tools by supplying a clean momentum read, and its divergences are a useful early warning that a trend is tiring. Volume confirmation adds conviction to a crossover. Since it is closely related to MACD and the TSI, it should not be stacked with those near-identical tools; instead pair it with something orthogonal like a volatility band or a structure-based level for genuine confirmation rather than redundancy.
Where the SMI Ergodic fails
The double smoothing that makes the SMI Ergodic so clean also makes it late at sharp reversals, so it confirms turns after they have begun and can give back part of a fast move. Near zero in a quiet market, the oscillator and its signal line tangle, producing a cluster of crossovers with no follow-through — its worst behavior. Traders who take every signal-line cross regardless of context get chopped up in these flat stretches. Its smoothness can also mask the speed of a genuine breakout, leaving you late to a fast new trend. The remedies are to require the line to be meaningfully away from zero, to apply a trend filter, and to accept the tool's inherent lag as the price of its clarity rather than fighting it.
A worked example
Picture a stock trending up on the daily chart, with the SMI Ergodic using 20, 5, and 5 settings sitting above zero at +18 and its signal line trailing at +14. Price pulls back for several sessions and the oscillator dips toward its signal but stays above zero, keeping the bullish bias intact. On the bar the pullback ends, the oscillator turns up and crosses above its signal line at +12 versus +11 — a clean bullish timing trigger within an established uptrend. A swing trader buys at 88.00, placing a stop below the pullback low at 84.50, and holds while the oscillator climbs and remains above both zero and its signal. Weeks later the oscillator rolls over and crosses back below its signal near +9; the trader exits at 96.50. The signal worked because the crossover happened well above zero in a trending market, not in the flat tangle around the zero line.