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Mass Index

The Mass Index attempts to predict reversals by comparing the trading range (High minus Low) for each period. Reversals are signaled by a bulge in the index line.

The Mass Index was invented by Donald Dorsey.

Trading Signals

The key signal is a reversal bulge. This occurs when the Mass Index (25 period) rises above 27 and falls back below 26.5.

Calculate a 9 day exponential moving average (EMA) of prices:

  • Go long if there is a reversal bulge and EMA points downward.
  • Go short if there is a reversal bulge and EMA points upward.

Use Trailing Stops to time your entry and Stop Losses on all trades.

Example

FedEx with Mass Index 25 day Mass Index, and EMA 9 day exponential moving average.

FedEx Mass Index

Mouse over chart captions to display trading signals.

Reversal bulges are very infrequent:

  1. Long signal - Mass index completes a reversal bulge at [1] while the moving average slopes downward. Place a trailing buy-stop above the High of the signal day and move it down above the high of each day until we are stopped in at [L].

Setup

The default settings are:

  • indicator window - 25 days
  • upper level - 27.0
  • lower level - 26.5

To alter the default settings - Edit Indicator Settings. See Indicator Panel for directions on how to set up an indicator.

Formula

To calculate the Mass Index:

  1. Calculate the range for each period:
               High - Low
  2. Calculate a 9 day exponential moving average of the range:
               EMA [H - L]
  3. Calculate a 9 day exponential moving average of the above:
               EMA ( EMA [H - L] )
  4. Divide the first: EMA by the second:
               EMA [H - L] / EMA ( EMA [H - L] )
  5. Add the values for the selected number of periods (normally 25).


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