Mass Index

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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. 

INVESTOPEDIA EXPLAINS '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?

    The mass index creates possible trade signals through the relationship between current trading ranges and historical trading ... Read Full Answer >>
  2. What are the best technical indicators to complement the Mass Index?

    The best technical indicators to complement a trading strategy using the mass index are exponential moving averages (EMAs) ... Read Full Answer >>
  3. What is a common strategy traders implement when using the Mass Index?

    A common trading strategy implemented with the mass index technical indicator is to enter the market looking for a trend ... Read Full Answer >>
  4. Why is the Mass Index important for traders and analysts?

    The mass index assumes that the propensity for price reversals increases in accordance with increases in trading ranges. ... Read Full Answer >>
  5. What is the difference between a drawdown in banking and a drawdown in trading?

    The term "drawdown" appears in both the banking world and in the arena of trading, but it has completely different meanings ... Read Full Answer >>
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