✔️ Information reviewed and updated in April 2024 by Eduardo López
One of the factors that we must take into account when carrying out operations in the financial market are trends. This because there are upward trends, the price rises, such as downward trends, the price falls, which we can take advantage of to invest or sell positions.
Among the indicators used to determine the direction of trends we find the mass index, an indicator that, although it could be confused with the indicator used in nutrition, has nothing to do with it. So that you do not confuse them, here we will tell you everything you need to know about this mass index.
➡✨ What is the mass index?
Created by Donald Dorsey in the 90s, This indicator is intended to help us conduct an in-depth analysis of stock price ranges. That's right, your goal is to serve as an investment aid in the stock market.
This indicator has its strength in how the trading ranges move, since that is where its usefulness is, allowing us to detect potential changes in trends. Today, the mass index can also be applied to changes in other types of assets.
➡✨ What is mass index used for?
Thanks to this indicator it is possible to analyze the range that exists between the difference of low and high prices in stocks. In this way, a change or reversal in trends can be anticipated, for example, going from a downtrend to an uptrend.
It also has a lot to do with volatility, since when volatility increases, the mass index also tends to do so, on the other hand, when volatility decreases, so does the mass index. For a reason, it can be used in financial predictions.
➡✨How to calculate the mass index?
The calculation of the mass index can be a bit complex, due to the breadth of data that it analyzes and the long period in which it does so. To determine this, you must first start by calculating the 9-day exponential moving average of both high and low price ranges for 25 days.
Then, you must take that number to divide it by the exponential moving average which is determined at 9 days. As you can see, To find it, it is necessary to carry out a good number of calculations prior to calculating this indicator.
➡✨ Reasons to use it
Although its calculation is complex, there are many reasons to use the mass index. The first is the fact that it allows you to determine the potential changes in the market. With this analysis you can predict if there is a change in trends.
It is also very useful to know the future of an asset, as well as to support your decision when investing. Another reason is the fact that this indicator allows you to delve into the analysis of price ranges very quickly and practically.
