See the original post at InformedTrades.com
This video describes The Mass Index technical indicator. Mass Index is available on the Forex.com platform. To register for it for free here, click here.
The Key Points regarding this indicator are as follows:
1. Developed by trader Donald Dorsey.
2. Similar to other indicators, like oscillators, that focus on identifying when price is overextended in one direction and likely to revert.
3. The indicator strives to identify when volatility is increasing, under the belief that increasing volatility often is a prelude to a trend reversal.
4. The textbook application of the indicator is to look for when it gives a reading of 27 or more; at this point, a reversal of the trend is likely. Traders can increase/decrease the sensitivity of the reading by using a lower number (to get more signals) or a higher one (to get fewer signals). Of course, considering the asset's typical Mass Index score, as well as other indicators and price action on the chart, can help significantly.
The math behind the indicator is a bit involved. As noted, it is geared towards identifying periods when volatility is increasing. Here is a short summary of how the Mass Index is calculated.
1. Single EMA = 9 period EMA (exponential moving average) of the high-low differential (i.e. trading range). This is an absolute value, meaning the number should always be positive; it does not matter if the high was greater than the low, or vice versa.
2. Double EMA = 9 EMA of the Single EMA
3. EMA Ratio = Single EMA / Double EMA
4. EMA Sum = Sum of the EMA Ratio over the past 25 periods
5. Mass Index = EMA Sum / Double EMA
Other Links to Help You Learn About the Mass Index Indicator
Mass Index - ChartSchool - StockCharts.com
As always, if you have any questions on Mass Index or anything you wish to add, please share them in the comments below.
This video describes The Mass Index technical indicator. Mass Index is available on the Forex.com platform. To register for it for free here, click here.
Inserted Video
The Key Points regarding this indicator are as follows:
1. Developed by trader Donald Dorsey.
2. Similar to other indicators, like oscillators, that focus on identifying when price is overextended in one direction and likely to revert.
3. The indicator strives to identify when volatility is increasing, under the belief that increasing volatility often is a prelude to a trend reversal.
4. The textbook application of the indicator is to look for when it gives a reading of 27 or more; at this point, a reversal of the trend is likely. Traders can increase/decrease the sensitivity of the reading by using a lower number (to get more signals) or a higher one (to get fewer signals). Of course, considering the asset's typical Mass Index score, as well as other indicators and price action on the chart, can help significantly.
The math behind the indicator is a bit involved. As noted, it is geared towards identifying periods when volatility is increasing. Here is a short summary of how the Mass Index is calculated.
1. Single EMA = 9 period EMA (exponential moving average) of the high-low differential (i.e. trading range). This is an absolute value, meaning the number should always be positive; it does not matter if the high was greater than the low, or vice versa.
2. Double EMA = 9 EMA of the Single EMA
3. EMA Ratio = Single EMA / Double EMA
4. EMA Sum = Sum of the EMA Ratio over the past 25 periods
5. Mass Index = EMA Sum / Double EMA
Other Links to Help You Learn About the Mass Index Indicator
Mass Index - ChartSchool - StockCharts.com
As always, if you have any questions on Mass Index or anything you wish to add, please share them in the comments below.