The Mass Index is used to warn of a future price reversal. The theory behind the Mass Index is that reversals occur when the price range [high - low] increases (i.e. more volatility).
The chart below of the E-mini S&P 500 future shows the Mass Index warning of an impending price reversal:
The components for a Mass Index reversal of trend, "Reversal Bulge" as the creator of the Mass Index, Donald Dorsey refers to it, are listed below:
- Mass Index rises above the trigger line (set at 26.5) and the setup line (set at 27).
- Mass Index then falls below the setup line. When the Mass Index falls below the trigger line, then a reversal of the prior trend is expected.
The Mass Index is a useful technical tool that traders can use to time entry into bottoming markets.
