Mass Index

 

The Mass Index is a range oscillator that uses changes in daily trading price and provides unique market reversal forecasts that other indicators may miss.

Overview

Donald Dorsey's mass index is used to signal an approaching trend reversal. The index is a 25 day moving sum of two moving averages. The first moving average is an exponentially smoothed moving average of the daily close and the second is the first average smoothed a second time. Values over 25 indicate a widening range and those less than 25 indicate a narrowing range.

Interpretation

The Mass Index is designed to identify reversals in trend by measuring the narrowing and widening of the average range between the high and low prices. As the range widens the Mass Index increases. As the range narrows the Mass Index decreases.

The most significant pattern to watch for is called the "reversal bulge." A reversal bulge occurs when a 25 period Mass Index rises above 27 and subsequently falls below 26.5. A reversal in price is likely once the Mass Index falls below 26.5. The overall direction of prices is not important.

A 9-period exponential moving average is often used to determine whether the reversal bulge indicates a "buy" or "sell" signal. The moving average can provide confirmation if it also reverses trend.

Signals

A signal is given when the Mass Index line:

 
  1. rises up through the 27 level, and,

  2. then crosses back down through 26.5, creating a bulge above these levels.

The Mass Index signal should normally be confirmed using other indicators, such as Moving Averages and breakout patterns from congestive phases.