Mass Index indicator(MI): How to analyze the direction of the financial market using Mass index indicator

Mass index is a volume based volatility indicator.

Being a volume based volatility indicator,Mass index indicator was created by Donald Dorsey with the main objective of helping traders to know whether the market is about to experience a trend reversal thus is being considered to follow the concept of divergence. Mass index also normally uses 25 period.

According to Donald Dorsey, the values of Mass index indicator is therefore calculated using the following formula;

Mass index= [25-period+ n-period EMA(high-low)/{n-period EMA( n-period EMA(high-low)}]

Therefore,since mass index is based on divergence ,it therefore follows that when the mass index indicator is moving upwards while the market is moving downwards,the market will reverse and start moving in the same direction upwards as the mass index.On the other hand,when the mass index is moving downwards while the market is moving upwards,the market will reverse and start moving in the same direction downwards as the mass index.This is indicated as from the candle sticks chart below;

From the candle sticks chart above,there are 3 points,point A,B and C.Point A and B represent divergence points while point C represents the mass index curve indicator.

At point A the market was moving upwards while the mass index curve was moving downwards.The market then reverse and start moving downwards as the mass index.This will signal the trader to be trading downwards at point A.On the other hand,at point B,the market was moving downwards while the mass index curve was moving upwards.The market then reverse and start moving upwards as the mass index.This will signal the trader to be trading upwards at point B.

Recommendation;If you are a day trader just use 1 min,5 min,15 min and 30 min timeframe while if you are a swing trader just use 1 hour and above timeframe if you want mass index to work well for you.
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