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)}]
As a volume based indicator, Mass index indicator can be explained for both bullish and bearish crypto market as follows;
1. Mass Index bullish cryptocurrency market
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.This will signal the cryptocurrency trader to purchase a given amount of cryptocurrency with their USDT balance. The trader can either place a market buy order which will be processed immediately or they can place a limit buy order which will be processed when the market reaches their limit buy order price.This is indicated as from below;
The above is a TRX market against USDT. Two points are being indicated. There is point A and point B. Point A is the Mass index curve while point B is the divergence point. At point B,the market was moving in a downwards direction while the mass index in an upward direction. The market then reverse and start moving in the same direction upwards as the mass index thus signalling the cryptocurrency trader to purchase a given amount of TRX with their USDT balance. The trader either uses the market price to place an order or the limit price. The market price is instantly executed while the limit price is executed when the market reaches their limit order price. The account of the trader will start increasing in value if the mass index and the market are moving in the same direction upwards upon completion of the order.
2. Mass Index bearish cryptocurrency market
Therefore,since mass index is based on divergence ,it therefore follows that when the mass index indicator 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 will signal the cryptocurrency trader to sell a given amount of cryptocurrency which he had previously purchased and is currently holding. The trader can either place a market sell order which will be processed immediately or they can place a limit sell order which will be processed when the market reaches their limit sell order price.This is indicated as from below;
The above is a TRX market against USDT. Two points are being indicated. There is point A and point B. Point A is the Mass index curve while point B is the divergence point. At point B,the market was moving in an upward direction while the mass index in a downward direction. The market then reverse and start moving in the same direction downwards as the mass index thus signalling the cryptocurrency trader to sell a given amount of TRX which he had previously purchased and is currently holding to avoid declining the value of their trading account. The trader either uses the market price to place an order or the limit price. The market price is instantly executed while the limit price is executed when the market reaches their limit order price. The account of the trader will have increased in value when the order is successfully placed.
cryptocurrency market is a highly volatile market. As a cryptocurrency trader,whenever you place a buy order,always make sure to apply risk management so that whenever your buy order goes against you, your account do not depreciate so much in value.
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