The Inertia indicator was developed by Donald Dorsey and first appeared in the September '95 issue of Stocks &Commodities magazine. Dorsey chose the name "Inertia" because of his interpretation of a trend. He claimed that a trend is the outward result of inertia; thus it takes more energy for a market to reverse direction than to continue in the same direction. Therefore, a trend is a measurement of market inertia.
In physics, Inertia is defined in terms of mass and direction of motion. Using standard technical analysis, the direction of motion is easily defined. However, mass is not so easily defined. Dorsey claimed that volatility may be the simplest and most accurate measurement of inertia. This theory led him to use the Relative Volatility Index (RVI) as the basis for a trend indicator. Inertia is a RVI smoothed by a linear regression indicator.
Inertia is measured on a scale from 0 to 100. If the indicator is above 50, it is said to have positive inertia. Signs of positive inertia are indicative of a long-term upward trend. If the indicator is below 50, it is said to have negative inertia. Signs of negative inertia illustrate long-term downtrends.
Calculation:
MA = Moving Average (Typically TSMA)
RVI = Relative Volatility Index(RVI) indicator value
Inputs:
Period = 20
Indicates time period(the number of days for daily analysis, the number of weeks for weekly analysis, etc.).
RVI_Period = 14
Indicates time period(the number of days for daily analysis, the number of weeks for weekly analysis, etc.) of the RVI indicator.
Moving Average Type = TSMA (Time Series Moving Average)
Indicates Moving Average type.
Indicator Type: Trend