DISTINGUISHING TREND REVERSALS WITH MASS INDEX
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The Mass Index was developed by Donald Dorsey .The Mass Index was designed to identify trend reversals by measuring the narrowing and widening of the range between the high and low prices. As this range widens, the Mass Index increases as the range narrows the Mass Index decreases.
CONSTRAINTS OF MASS INDEX
The most significant pattern to watch for is a "reversal bulge." A reversal bulge occurs when a 25-period Mass Index rises above 27.0 and subsequently falls below 26.5. A reversal in price is then likely. The overall price trend is unimportant.
A 9-period exponential moving average of prices is often used to determine whether the reversal bulge indicates a buy or sell signal. When the reversal bulge occurs, trader should buy if the moving average is trending down and sell if it is trending up.
Mass Index uses high low differential to provide volatility measure. This indicator fluctuates with mid- 20s which increases the chances of trend reversal. Mass Index does not have directional bias. The Mass Index is presented as a useful technical tool that traders might use to time entry into bottoming markets.
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