The Mass Index (#Mass Index, MI) is a technical indicator used in trading to assess market volatility and identify potential price reversal points. It was developed by Donald Dorsey in the 1990s to help traders identify periods when a trend may change direction. The Mass Index does not indicate the direction of price movement but only signals the probability of a reversal, making it a valuable tool in comprehensive analysis.
How is the Mass Index calculated?
The MI formula is based on the difference between the maximum and minimum prices over a certain period (usually 9 days). Key calculation steps:
The exponential moving average (EMA) of the difference between High and Low is calculated over 9 periods.
Next, the second EMA (also over 9 periods) is taken from the result of the first step.
Mass Index = sum of the ratio of the first EMA to the second EMA over 25 periods.
The typical MI value ranges between 20 and 30. If the indicator exceeds 27, it may indicate an approaching reversal, and a drop below 26.5 afterwards confirms the signal.
Practical application
The Mass Index is particularly useful in low-volatility markets when the price moves within a range. Traders use it for:
Detection of consolidation periods before a strong move.
Confirmation of signals from other indicators, such as RSI or MACD.
Avoiding false entries into the trend.
For example, if the MI exceeds 27 and then falls, the trader can prepare to buy or sell depending on the context of the chart.
Advantages and disadvantages
Advantages: simplicity of interpretation, effectiveness in sideways markets. Disadvantages: lagging signals and the need for combination with other tools.
Mass Index – it is not a universal tool, but in skilled hands, it helps predict key market changes, increasing the accuracy of trading decisions.#tehnicalanalysis
SUBSCRIBE⬇️
