Inertia Commodity Trading Technical Analysis & Inertia Trading Signals

Developed by Donald Dorsey & was originally used to trade Stocks & Commodities Trading market, before commodity traders took it & started trading the Commodity Trading market using this indicator.

Dorsey chose to name it "Inertia" because of his interpretation of the commodities trading market trend. He claimed that a commodity market trend is the overall result of inertia and thus it takes more momentum for a trending market to reverse its direction than to continue moving in the same direction. Therefore, a commodity trend is the measurement of market inertia. This is an oscillator that uses the scale of zero to a hundred. Signals are generated using the 50 level center line crossover method.

In physics, the term Inertia is defined in terms of mass & direction of motion. Using the standard technical analysis, the direction of motion of the commodity trend can be easily defined. However, the mass can't be easily defined. Dorsey claimed that the volatility of a financial instrument might be the simplest and the most accurate measurement of inertia. This theory led to the use of the Relative Volatility Index (RVI) as the basis to be used as a commodity trend technical indicator. Therefore Inertia technical indicator is comprised of: RVI smoothed by a linear regression.

Commodity Trading Technical Analysis & How to Generate Trading Signals

When it comes to trading the commodity market using this indicator, the signals generated are fairly simple to interpret. Below are 2 examples illustrated using commodity charts showing how buy & sell signals are generated using Inertia.

Bullish Buy Trading Signal

If the Inertia is above 50, positive inertia is indicated, this therefore defines the long term commodity trend as upward as long as the indicator remains above 50. When it crosses to levels below 50 then this is interpreted as an exit signal. The chart below shows an example of how a buy signal is generated.

Bullish Trading Signal

Bearish Sell Trading Signal

If the Inertia is below 50, negative inertia is indicated, this therefore defines the long term commodity trend as downwards as long as the indicator remains below 50. If it goes above 50 then this is interpreted as an exit signal. The commodity chart below shows how a sell signal generated.

Bearish Trading Signal