The Mass Index was popularized by Tushar Chande and Donald Dorsey. It is usually calculated by summing exponentially smoothed moving average of high-low day ranges for 25 last periods. The aim of this index is to identify a trend reversal by measuring the changes of an average range between the highest and the lowest price. When the range is widening, the Mass Index is increasing, when the range is narrowing, the Mass Index is decreasing.
Exponential moving average (for example, with period 9) is used to reveal a buy (sell) signal. As the Mass Index attempts to predict a trend reversal, a long position is opened, in case the moving average indicates a downtrend and the short one is opened when the moving average indicates an uptrend.
Author: Nikolay Kositsin