Indicators: Mass Index (MI)
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Mass Index (MI):
The Mass Index (MI) is intended for detection of trend reversals based on changes in the bandwidth between the highest and the lowest prices.
If the bandwidth expands, the Mass Index increases, if it narrows, the index decreases. The Mass Index was popularized by Tushar Chande and Donald Dorsey.
According to D. Dorsey, the most important signal from the Mass Index should be a special model constructed by the indicator and called 'reversal bulge'. The reversal bulge is formed when the 25-period mass index, first, exceeds 27 and then falls below 26.5. In this case, the price turn is very possible independently on the general nature of the trend, i.e., it does not matter, whether prices move up, down or fluctuate within the trading range.
To detect what exactly signal - to buy or to sell - is produced by the reversal bulge, 9-period exponential moving average of prices is frequently used. When a reversal bulge appears, it is time to buy, if the moving average falls (with a view to a reversal), and sell, if it increases.
Author: Nikolay Kositsin