Disparity Index

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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.

INVESTOPEDIA EXPLAINS '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?

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RELATED FAQS
  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's a good forex strategy to use when spotting a Wedge-shaped Pattern?

    Use wedge-shaped patterns to identify bullish or bearish price action when trading currencies in the foreign exchange (forex) ... Read Full Answer >>
  6. How do I perform a financial analysis using Excel?

    Investors can use Excel to run technical calculations or produce fundamental accounting ratios. Corporations use Excel to ... Read Full Answer >>
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