Inertia Technical Analysis & Inertia Signals

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

Dorsey chose to name it "Inertia" because of his interpretation of the trend. He claimed that a 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 heading in the same direction. Therefore, a price trend is the measurement of market inertia. This is an oscillator technical that uses the scale of zero to a hundred. Signals are generated using the 50 level centerline cross-over trading strategy method.

In physics, the term Inertia is defined in terms of mass and direction of motion. Using standard technical analysis, the direction of motion of the trend can be easily defined. However, the mass cannot be easily defined. Dorsey claimed that the volatility of a financial instrument may be the simplest & 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 trend trading indicator. Hence Inertia indicator is comprised of: RVI smoothed by a linear regression.

Gold Technical Analysis and Generating Signals

When it comes to trading the market using this indicator, the signals generated are fairly simple to interpret. Below are two example illustrated using charts showing how buy & sell trade 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 trend as upward as long as the technical 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.

Upwards Trend - Bullish Signal

Bearish Sell Trade Signal

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

Downward Trend - Bearish Signal

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