Disparity Index


DEFINITION of 'Disparity Index'

A technical indicator that measures the relative position of the most recent closing price to a selected moving average and reports the value as a percentage. A value greater than zero suggests that the asset is gaining upward momentum, while a value less than zero can be interpreted as a sign that selling pressure is increasing.

BREAKING DOWN 'Disparity Index'

Extreme values of this indicator can be a very useful tool for contrarian investors to foretell periods of exhaustion. Once the price is excessively pushed in one direction, there are very few investors to take the other side of the transaction when the participants wish to close their position, ultimately leading to a price reversal. Similar to the ROC indicator, important signals are generated when the indicator crosses over the zero line because it is an early signal that momentum is building.

To learn how to use the disparity index in your trading, check out Why is the disparity index indicator important to contrarian investors?

  1. Indicator

    Indicators are statistics used to measure current conditions ...
  2. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth ...
  3. Price Rate Of Change - ROC

    A technical indicator that measures the percentage change between ...
  4. Contrarian

    An investment style that goes against prevailing market trends ...
  5. Crossover

    The point on a stock chart when a security and an indicator intersect. ...
  6. Momentum

    The rate of acceleration of a security's price or volume. The ...
Related Articles
  1. Active Trading

    Measure Momentum Change With ROC

    Learn how to build a price rate of change indicator and incorporate it in your strategy.
  2. Chart Advisor

    These Oil & Gas Stocks Have Reversed

    It's been a long downtrend for oil stock owners, but there's hope. These four oil and gas stocks have reversed and may keep trending to the upside.
  3. Chart Advisor

    4 European Stocks to Consider Buying

    European companies, listed on US exchanges, that are providing buying opportunities right now.
  4. Chart Advisor

    ChartAdvisor for October 2 2015

    Weekly technical summary of the major U.S. indexes.
  5. Investing

    How Diversifying Can Help You Manage Market Mayhem

    The recent market volatility, while not unexpected, has certainly been hard for any investor to digest.
  6. Technical Indicators

    Why MACD Divergence Is an Unreliable Signal

    MACD divergence is a popular method for predicting reversals, but unfortunately it isn't very accurate. Learn the weaknesses of indicator divergence.
  7. Chart Advisor

    Weakness In Biotech Will Likely Continue

    You can breathe easy with your biotech holdings--assuming you aren't counting on them to make you rich.
  8. Chart Advisor

    Expecting a Big Breakout In These 4 Stocks

    These stocks are tightly wound following big moves, and upon breakout more big moves could ensue.
  9. Chart Advisor

    Trade Base Metals With These 3 ETFs

    News out of Alcoa is causing active traders to turn toward base metals for opportunities. Before diving into the market, check out the charts of these three ETFs.
  10. Charts & Patterns

    The Importance Of Tracking The Whisper Number

    Don't let the name fool you: Whisper numbers are making themselves heard. Here's why you should be paying attention.
  1. Why is the disparity index indicator important to contrarian investors?

    The disparity index is a technical momentum indicator that compares market price to a time-defined moving average of market ... Read Full Answer >>
  2. What are common trading strategies used with the disparity index?

    Technical analysts and traders use the disparity index to spot abnormal or rapid movements in a security's price, showing ... Read Full Answer >>
  3. How do I use the disparity index in forex trading?

    The disparity index is a technical volatility oscillator that evaluates the relationship between current price action and ... Read Full Answer >>
  4. What is the disparity index formula and how is it calculated?

    Steve Nison introduced the disparity index in his book, "Beyond Candlesticks," as a way to analyze price movements in candlestick ... Read Full Answer >>
  5. What are some of the most common technical indicators that back up Doji patterns?

    The doji candlestick is important enough that Steve Nison devotes an entire chapter to it in his definitive work on candlestick ... Read Full Answer >>
  6. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  2. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  3. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  4. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  5. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  6. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!