The Mass Index technical analysis indicator
identifies price trend reversals by measuring the narrowing and
widening of the range between the high and low prices of a stock on
the stock market.
As the range between the high low prices widens, the Mass Index
increases and as the range narrows the Mass Index decreases.
Calculating:
-
Calculate a 9-day exponential moving average of the difference
between the high and low prices.
a = ema(H - L, 9)
-
Calculate another 9-day exponential moving average of the moving average from
step 1.
b = ema(a, 9)
-
Divide the moving average calculated in step 1 by the moving average
calculated in step 2.
c = a / b
-
Total the values in Step 3 for the number of periods in the Mass Index.
The trading rules applied to the mass index revolve around
anticipating reversals of the current price trend, and typically
involve waiting until the mass index reaches a certain value (the
value is oftentimes determined through experimentation) and then drops
to a lower threshold value (again usually determined through
experimentation).
An n-period exponential moving average of prices can be
used to determine whether the reversal indicates a buy or sell signal.
When the reversal occurs, you should buy if the moving average is
trending down and sell if it is trending up.
| 
