V.10:6 (265-267): The Mass Index by Donald Dorsey

V.10:6 (265-267): The Mass Index by Donald Dorsey
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The Mass Index by Donald Dorsey

Range oscillation, not often covered by students of technical analysis, delves into repetitive market patterns during which the daily trading range narrows and widens. Examining this pattern, Donald Dorsey explains, allows the technician to forecast market reversals that other indicators may miss. Dorsey proposes the use of range oscillators in his mass index.

Range oscillation is one of the least explored areas of technical analysis. Typically, markets tend to repeat a pattern in which the average daily range (that is, the difference between the high and low) oscillates from narrow to wide and back again. Oftentimes, this pattern will predict critical market reversals, while traditional technical indicators may miss them. The mass index is designed to identify important changes in daily ranges; in fact, the mass index has proved its ability to measure range oscillation patterns and depict market turns with precision. (See sidebar, "The mass index and moving average formulas.")

The most important pattern in range oscillation analysis is the reversal bulge, a gradual but definite increase of the average daily range that indicates the market is near a turning point. Little is known about range oscillation patterns because they can be difficult or even impossible to spot on an ordinary graph, but with the use of a smoothed graph, an ideal reversal bulge can be clearly seen (Figure 1). The overall action of the market is unimportant to the pattern. Whether the bulge occurs while the market is tracing out a wide trading range or while the market is rocketing forward at increasing momentum, the result is the same.

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