Inertia Indices Technical Analysis & Inertia Signals

Created by Donald Dorsey & was originally used to trade Stocks & Commodities market, before traders took it and started trading the market using this technical 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 & thus it takes more momentum for a trending market to reverse its direction than to continue heading in the same direction. Hence, a market trend is the measurement of market inertia. This is an oscillator trading 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 trading 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 might 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 market trend technical indicator. Hence Inertia technical indicator is comprised of: RVI smoothed by a linear regression.

Indices Technical Analysis & How to Generate Signals

In the market using this indicator, the signals generated are fairly simple to interpret. Below are 2 example illustrated using charts showing how buy & sell signals are generated using Inertia.

Bullish Buy Trade Signal

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

Bullish Trading 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 trading 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.

Bearish Signal

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