Mass Index

 

#volatility #reversal  

Inventor: Donald Dorsey 

Created by Donald Dorsey to catch trend reversals by watching the high-low range swell and shrink. It sums a smoothed ratio of the daily range over 25 bars. When ranges widen sharply and then contract, the Mass Index forms a ‘reversal bulge’ – a classic warning that the current trend is about to flip. It gives no direction; the existing trend tells you which way the flip goes. 

Default period: 9, 25 (EMA of range, sum) 

Rising line indicates ranges swelling, pressure building. Falling line indicates ranges settling. 

This indicator does not give direction. The signal is a reversal of whatever trend is running. 

Useful readings: 

Rises above 27: Reversal bulge forming, current trend in danger 

Falls back below 26.5 after crossing 27: Bulge complete, reversal signal fired 

Stays below 26 for long: Calm ranges, existing trend can continue 

Bulge during an uptrend: Watch for a top 

Bulge during a downtrend: Watch for a bottom 

Best paired with a moving average to define which trend is being reversed 

Objective rules: 

Reversal signal: Mass Index rises above 27 and then falls below 26.5. 

Bullish application: Reversal signal fires while the trend is down (price below 20 MA), prepare to buy on a price trigger. 

Bearish application: Reversal signal fires while the trend is up (price above 20 MA), prepare to sell on a price trigger. 

Trigger rule: Act only when price confirms, for example closing across the 20 MA after the signal 

What makes it unique: 

It predicts reversals purely from range behavior – the bulge – without ever asking which way price is going. A reversal tool with no opinion on direction is one of a kind. 

The indicator table value in TradePoint & RZone also provides you with a list of all values of this indicator for any group of stocks. This will allow you to compare the readings of this indicator across different stocks.

This indicator is also available in the System Builder of RZone & TradePoint for all charting methods. Using the system builder, you can develop various strategies based on the different conditions already present in this indicator. Additionally, it can be used with other indicators or price patterns to develop effective trading strategies. For any group of stocks and market segments, you can scan and backtest stocks based on those strategies.

The indicator is applicable to all types of charting. Calculated based on the number of columns on P&F charts, bricks on Renko charts, lines on Line-break charts, candles on Heikin ashi charts, and lines on Kagi charts. While the formula and reading of the indicators remain the same, they become more dynamic on these charts.