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- Mass Index for Trend Reversals
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Mass Index is a major indicator of trend reversals developed by Donald Dorsey. It tries to predict trend reversals by calculating the widening and shortening of the daily high-low range. Mass index is an important indicator because it often gives right predictions and works when other indicators miss.
By definition mass index is a 25-day moving sum of two 9-day exponential moving averages (EMAs). First is the 9-day EMA of difference between the high and low prices of a day. Second is the 9-day EMA of first EMA. To calculate mass index first EMA is divided by second EMA and the result is added to the number of periods of the mass index (typically 25-days). In short mass index rises when the difference between high and low prices increases and falls when the same decreases.
With Mass index, the most important pattern to look for is the 'Reversal Bulge'. A reverse bulge occurs when the 25-day mass index ascends above 27 (set up line) and then descends below 26.5 (trigger line). This indicates a near reversal in current price trend. But mass index does not give any bullish or bearish signals. To overcome this, most traders use a 9-day EMA of closing prices. Buy signals are generated when 9-day EMA points downward at a reversal bulge and sell signals are generated when 9-day EMA points upward at a reversal bulge.
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