Indicators: Mass Index
The Mass Index is used to warn of a future price reversal. The theory behind the Mass Index is that reversals occur when the price range [high - low] increases (i.e. more volatility).
The chart below of the E-mini S&P 500 future shows the Mass Index warning of an impending price reversal:
The components for a Mass Index reversal of trend, "Reversal Bulge" as the creator of the Mass Index, Donald Dorsey refers to it, are listed below:
- Mass Index rises above the trigger line (set at 26.5) and the setup line (set at 27).
- Mass Index then falls below the setup line. When the Mass Index falls below the trigger line, then a reversal of the prior trend is expected.
The Mass Index is a useful technical tool that traders can use to time entry into bottoming markets.
And this is example of Mass index with Metatrader 5 :
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Mass Index example with EURUSD M30
And this is updated situation with Mass Index for reversal :
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updated situation for AUDUSD with Mass Index for reversal
The trade for EURUSD (see 2 previous posts) was closed with 135 pips in profit (4 digit pips) :
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137 pips for EURUSD
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Mass Index:
The Mass Index is developed to catch the trend reversal points. The mass index was created by Donald Dorcy. In case the movement is considerable the Mass Index goes up, otherwise if it is slight the Mass Index goes down. The daily prices movements are used for this purpose.
According to D.Dorcy, the most important mass index signal is a special model formed by the indicator. It is called "reversal bulge". It is formed when a 25-period mass index first rises above 27 and then falls below 26,5. In this case a turn of prices can take place, independently of the general trend (the prices may move up or down or fluctuate within a trade corridor).
To find out which signal - for buy or for sell - the reverse bulge gives, people often use 9-period exponential moving average of prices. When a reverse bulge appears, you should buy if the moving average falls (in hope of a turn) and sell if it grows.
Author: MetaQuotes Software Corp.