A Relative Volatility Index smoothed by a linear regression developed to define a trend.
Overview
Developed by Donald Dorsey, the Inertia indicator first appeared in the September 95 issue of Stocks & Commodities magazine.
Dorsey claimed that a trend is the outward result or consequence of inertia; thus it takes more energy for a market to reverse direction than to continue in the same direction. This suggests look at a trend as a measurement of market inertia.
In physics, Inertia is defined in terms of mass and direction of motion. Technical analysis can determine the direction of motion. However, the mass is not so easily defined. Dorsey claimed that volatility may be the simplest and most accurate measurement of inertia. Using this theory, he developed the Relative Volatility Index (RVI) as the basis for a trend indicator. The Inertia indicator is the RVI smoothed by a linear regression indicator.
Inertia plotted on a 4H gold (XAU/USD) chart 4/16/2011
Source: VT Trader
Interpretation
The Inertia indicator is a simple oscillator with a 50 mid-line. If the Inertia reading is above 50, the long-term trend is defined as up . If the Inertia indicator is below 50 the long-term trend is defined as down.
