Mass Index

DEFINITION of 'Mass Index'

A form of technical analysis that examines the range between high and low stock prices over a period of time. The Mass Index, developed by Donald Dorsey in the early 1990s, suggests that a reversal of the current trend will likely take place when the range widens beyond a certain point and then contracts. 

BREAKING DOWN 'Mass Index'

To determine the Mass Index, first calculate the nine-day exponential moving average (EMA) of the range between the high and low prices for a period of time – typically 25 days. Then divide this figure by the nine-day exponential moving average of the moving average in the numerator. The equation looks like this:

 

 

Dorsey hypothesized that, when the figure jumps above 27 – creating a “bulge” – and then drops below 26.5, the stock is ready to change course. An index of 27 represents a rather volatile stock, so some traders set a lower baseline when determining the presence of a price bulge.

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RELATED FAQS
  1. How do I use Mass Index for creating a forex trading strategy?

    Discover how forex traders can use Donald Dorsey's mass index to spot possible reversals in the price action trends of currency ... Read Answer >>
  2. Why is the Mass Index important for traders and analysts?

    Discover Donald Dorsey's mass index, a smoothed volatility indicator that forecasts price reversals based on increases in ... Read Answer >>
  3. What is a common strategy traders implement when using the Mass Index?

    Learn about the mass index technical indicator and the common market reversal trading strategy that is designed to be utilized ... Read Answer >>
  4. What are the best technical indicators to complement the Mass Index?

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