Inertia Stock Indices Technical Analysis and Inertia Stock Indices Signals

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

Dorsey chose to name it "Inertia" because of his interpretation of the stock index trend. He claimed that a stock index trading market stock indices 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 stock indices 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 stock indices 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 stock indices trend indicator. Therefore Inertia is comprised of: RVI smoothed by a linear regression.

Stock Indices Technical Analysis and Generating Stock Indices Signals

When it comes to trading the stock indices market using this indicator, the signals generated are fairly simple to interpret. Below are two examples illustrated using stock indices charts showing how buy and sell stock indices signals are generated using Inertia.

Bullish Buy Stock Indices Signal

If the Inertia is above 50, positive inertia is indicated, this therefore defines the long-term stock indices 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 stock indices signal is generated.

Upward Stock Indices Trend - Bullish Signal

Bearish Sell Stock Indices Signal

If the Inertia is below 50, negative inertia is indicated, this therefore defines the long-term stock indices 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 stock indices chart below shows how a sell stock indices signal generated.

Downward Stock Indices Trend - Bearish Signal