The mass index is an indicator, developed by Donald Dorsey, used in
technical analysis
In finance, technical analysis is an analysis methodology for analysing and forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis use many of the sam ...
to predict trend reversals. It is based on the notion that there is a tendency for reversal when the price range widens, and therefore compares previous trading ranges (highs minus lows).
Mass index for a commodity is obtained by calculating its
exponential moving average
In statistics, a moving average (rolling average or running average) is a calculation to analyze data points by creating a series of averages of different subsets of the full data set. It is also called a moving mean (MM) or rolling mean and is ...
over a 9-day period and the exponential moving average of this average (a "double" average), and summing the ratio of these two over a given number of days (usually 25).
:
Generally the EMA and the re-smoothed EMA of EMA are fairly close, making their ratio is roughly 1 and the sum around 25.
According to Dorsey, a so-called "reversal bulge" is a probable signal of trend reversal (regardless of the trend's direction).
Mass Index
at IncredibleCharts.com Such a bulge takes place when a 25-day mass index reaches 27.0 and then falls to below 26 (or 26.5). A 9-day prime moving average is usually used to determine whether the bulge is a buy or sell signal.
This formula uses intraday range values: not the "true range," which adjusts for full and partial gaps. Also, the "bulge" does not indicate direction.
References
{{technical analysis
Technical indicators