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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:
- rises up through the
27 level, and,
- 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.
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