#### Definition

Mass index is a technical analysis indicator that is used to examine the differences between high and low stock prices over a specific period of time. The index proposes that a trend reversal may be imminent when there is a larger difference between stock prices, and then this difference recedes.

#### History

The mass index was developed and introduced by Donald Dorsey in the beginning of the 1990s. Dorsey initially thought that when the calculation resulted in a figure above 27 and then dropped a point and a half below (to 26.5), the stock would be ready to change direction. This result would create a “bulge” of sorts. It has been determined that an index of 27 showcases stock volatility, causing some traders to lower their baseline when expecting a price bulge.

#### Calculations

To calculate the mass index, check the formula below.

25
∑ 9 − Day EMA of a 9 − Day EMA of (High − Low) / 9 − Day EMA of (High − Low)
1

The steps for calculation are as follows.

- Begin by calculating the nine-day Exponential Moving Average (EMA) of the difference between high and low stock prices for a specific period of time. This is usually determined as 25 days.
- Continue by dividing this result by the nine-day Exponential Moving Average of the moving average that is displayed in the numerator of the equation (shown above).

#### Takeaways and what to look for

While it is common to use indicators like standard deviation to measure volatility within the market, the mass index also has a lot to offer. Using the mass index’s reversal bulge function can shed some light on market conditions and can also be used to trade continuations of a trend.

Great for short-term trades, the mass index can be easily modified for sensitivity or based on specific periods in relation to market volatility depending on the stock.

#### Summary

The mass index is a tool for technical analysis that examines the range of difference between high and low stock prices over a particular period of time. A reverse in market trend may be clear if the range expands and then recedes to a different point.