The Intraday Momentum Index (IMI) is a technical momentum oscillator that combines candlestick-style intraday information (open vs. close) with the calculation logic of the Relative Strength Index (RSI). Developed by Tushar Chande, the IMI measures the ratio of intraday “up” movement to total intraday movement over a lookback period (commonly 14 days) and is expressed as a value between 0 and 100. Readings above 70 typically signal overbought conditions; readings below 30 indicate oversold conditions. (Source: Investopedia)
Why use the IMI?
– Captures intraday strength/weakness (close vs. open) rather than interday changes (prior close vs. current close).
– Can provide earlier or different overbought/oversold signals than the standard RSI.
– Works well combined with candlestick patterns, support/resistance, trend filters, or other indicators for trade confirmation.
The formula
IMI = [ Sum of Gains on Up Days / (Sum of Gains on Up Days + Sum of Losses on Down Days) ] × 100
Where for each day d:
– Gain = Close − Open, if Close > Open (otherwise 0)
– Loss = Open − Close, if Open > Close (otherwise 0)
– Typical n (lookback) = 14 days
Step‑by‑step calculation (practical)
1. Collect n days of price data with Open and Close for each day (n = 14 typical).
2. For each day compute Difference = Close − Open.
3. Separate positive differences (Gains) and negative differences (Losses). Convert Losses to positive magnitudes (Loss = |negative difference|).
4. Sum Gains across the n days → SumGains. Sum Losses across the n days → SumLosses.
5. Compute IMI = SumGains / (SumGains + SumLosses) × 100.
6. Plot IMI as an oscillator (0–100). Typical interpretation: IMI > 70 = overbought; IMI 0″,C2:C15)
– SumLosses = =-SUMIF(C2:C15,” 50‑day MA), prefer long signals when IMI is oversold (70).
3. Look for confluence before entry:
• Oversold IMI + bullish reversal candlestick (hammer, engulfing) near support or moving average → consider long.
• Overbought IMI + bearish reversal candlestick near resistance → consider short.
4. Entry:
• Enter after confirmation candle closes (or on break of the next candle’s high/low).
5. Stop‑loss:
• Place stop below recent swing low for a long; above recent swing high for a short. Use a fixed percentage or ATR multiple for volatility‑based stops.
6. Profit target / exit:
• Exit when IMI returns to neutral or overbought/oversold opposite extreme (e.g., exit long when IMI > 50–70), or use price-based targets (risk:reward 1:2 or trailing stop).
7. Position sizing & risk management:
• Risk a predefined percentage of portfolio (e.g., 1–2% per trade). Backtest and adjust.
Common ways to improve signal quality
– Require price confirmation (breakouts, support/resistance) rather than trading IMI extremes alone.
– Combine with momentum/trend indicators (RSI, MACD) or volume confirmation.
– Use divergence (price makes new low but IMI does not) as an early reversal signal.
– Backtest settings (lookback n and threshold levels) on the specific security/timeframe; some instruments or shorter timeframes may need different thresholds (e.g., 20/80).
Limitations and caveats
– Lagging nature: IMI uses historical intraday closes and will lag price; in strong trends it can remain overbought/oversold for extended periods and give false reversal signals.
– Works best as a component of a broader strategy (confluence is important).
– Less useful on extremely low‑liquidity stocks where intraday opens and closes can be noisy.
– Overfitting risk: Don’t rely on a single optimal historical parameter for all instruments or market regimes.
Example tactical strategies (concise)
– Mean‑reversion: Buy when IMI 70 and price is near resistance with bearish reversal signals.
Implementation tips (platforms & automation)
– Most charting platforms (TradingView, Thinkorswim, MetaTrader, etc.) allow custom indicators; IMI is often available in public scripts or can be coded quickly.
– For automation, compute IMI using OHLC daily bars (open and close); use your platform’s scripting language to produce signals and risk rules.
– Backtest across multiple market regimes before using live; use walk‑forward testing if possible.
Summary
The IMI is a compact oscillator that blends intraday candlestick information with RSI-style logic to gauge overbought and oversold conditions using open-close differences. It’s most effective when used with trend filters, candlestick confirmations, support/resistance, and proper risk management. Like any single indicator, it should not be used in isolation; combining it with other tools and backtesting on the tradable instrument and timeframe will improve its practical value.
Sources
– Investopedia: “Intraday Momentum Index (IMI)” — (source for definition, thresholds, developer attribution).