Today we have decided to tell our readers about a very interesting binary options’ indicator, the Mass Index indicator. This tool appeared thanks to a famous analyst Donald Dorsey, who has used a technical analysis in his work. This indicator is based on the fact that a range in the market may change. If it becomes wider, then the indicator’s growth is occurring. And if a range becomes narrower, the indicator’s line is moving downwards.
Description of Mass Index indicator
What does this indicator turn out to be? The line which either grows or declines is built on its chart. Technically, it looks like many other indicators. But its essence is based on the absolutely different approaches. As we have already mentioned above, if a trading range in the market become wider, this indicator grows. And if there is a narrowing, then it declines.
This indicator is based on the simple moving averages. But, unlike the basic tool, the Mass Index binary options’ indicator doesn’t show the main direction of the market’s movement. It was developed in order to find reversal points in the market.
There are four parameters in settings of this indicator
- Firstly, it is needed to set a period of the exponential moving average. This is because this is the most important thing in the binary options’ indicator.
- Then, it is needed to set a period for the second moving average, which is also taken into account during the indicator’s work.
- A trader will also have to set a number of the edging periods, which have to be calculated for the indicator’s work too.
- Finally, in order to receive the accurate trading signals from the indicator, it is needed to set the relevant levels. Initially, there are two levels (26.5 and 27) in the settings.
Trading signals of Mass Index indicator
The most important thing in any indicator is the quality level of its signals. As mentioned above, the Index Mass binary options’ indicator doesn’t show the direction of a trend. For this reason, if a trader notices that the indicator’s line starts to grow, it doesn’t mean that a price will grow too.
But it is interesting to pay attention to the following fact. This indicator sends a pretty strong signal, which is called the reversal bulge. This signal appears on a chart when the indicator’s line moves from down and crosses the level 27 first and then the level 26.5.
If such signal appears on the indicator’s chart, it means that the market will reverse in the nearest time. But many traders prefer to use many other indicators additionally, in order to determine a trend after the reversal. For example, they may use the moving averages.
How to receive signal using two indicators together?
Firstly, you have to follow the Mass Index indicator. As soon as it sends the reversal bulge signal, you have to pay attention to the moving averages. If the moving averages show the downward movement, the Put option can be bought. In this case, trend switches to the descending one.
As for the Call option, it can be bought when the reversal bulge signal appears, and it is followed by the moving averages signalizing the start of the ascending trend. If you want to determine the reversal or to trade, usage of only this one Mass Index signal alone is not recommended.
Despite the fact that the signals from this indicator appear rarely, in most cases, these signals predict the reversal point in the market correctly.