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?

RELATED TERMS
  1. Ease Of Movement

    A technical momentum indicator that is used to illustrate the ...
  2. Price Rate Of Change - ROC

    A technical indicator that measures the percentage change between ...
  3. Zero-Bound

    A situation that occurs when the Federal Reserve has lowered ...
  4. Contrarian

    An investment style that goes against prevailing market trends ...
  5. Polarized Fractal Efficiency - ...

    A technical indicator developed by Hans Hannula that was invented ...
  6. Signal Line

    A moving average plotted alongside a technical indicator and ...
Related Articles
  1. Trading Strategies

    Momentum Indicates Stock Price Strength

    Momentum can be used with other tools to be an effective buy/sell indicator.
  2. Active Trading

    Moving Averages: Different Flavors

    By Casey Murphy, Senior Analyst ChartAdvisor.com Most of the methods in which moving averages are used in trading have been addressed within this tutorial, but this tool has also been used in ...
  3. Forex

    Moving Average Flavors

    Get a better understanding of moving averages in this walkthrough.
  4. Trading Strategies

    Technical Analysis: Indicators And Oscillators

    By Cory Janssen, Chad Langager and Casey MurphyIndicators are calculations based on the price and the volume of a security that measure such things as money flow, trends, volatility and momentum. ...
  5. Technical Indicators

    Four Commonly Used Indicators In Trend Trading

    No single indicator can punch a ticket to market riches, but here are four that remain popular among trend traders.
  6. Insurance

    Exploring Oscillators and Indicators: Leading And Lagging Indicators

    By Chad Langager and Casey Murphy, senior analyst of ChartAdvisor.com Indicators can be separated into two main types - leading and lagging - both differing in what they show users. Leading ...
  7. Technical Indicators

    The Four Most Commonly-Used Indicators In Trend Trading

    Here are the top indicators and tools trend traders use to establish when trends exist and to find entry/exit points.
  8. Insurance

    Exploring Oscillators and Indicators: Conclusion

    By Chad Langager and Casey Murphy, senior analyst of ChartAdvisor.com The goal of every short-term trader is to determine the direction of a given asset's momentum and to attempt to profit from ...
  9. Active Trading Fundamentals

    How Market Psychology Drives Technical Indicators

    The tenets of market psychology underlie each and every charting tool.
  10. Trading Strategies

    Contrarian Traders

    Contrarian trading is an investment style that goes against prevailing market trends by buying assets that are performing poorly and then selling when they perform well. A contrarian trader believes ...
RELATED FAQS
  1. Why is the disparity index indicator important to contrarian investors?

    Learn more about the disparity index, a technical momentum indicator that uses the relationship between current prices and ... Read Answer >>
  2. How do I use the disparity index in forex trading?

    Read about how traders in the forex market can use the disparity index to identify reversals, divergences and overbought/oversold ... Read Answer >>
  3. What are common trading strategies used with the disparity index?

    Read about some of the trading concepts that accompany the disparity index, a technical volatility indicator introduced by ... Read Answer >>
  4. What is the disparity index formula and how is it calculated?

    Discover how to calculate the disparity index, a technical indicator used by analysts to measure price movements in a candlestick ... Read Answer >>
  5. What technical tools can I use to measure momentum?

    One of the main goals of every trader using technical analysis is to measure the strength of an asset's momentum and the ... Read Answer >>
  6. What are the best technical indicators that complement the Price Rate Of Change (ROC)?

    Explore some of the best technical indicators, such as moving averages, that complement trading strategies using the price ... Read Answer >>
Hot Definitions
  1. Goodwill

    An account that can be found in the assets portion of a company's balance sheet. Goodwill can often arise when one company ...
  2. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  3. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  4. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  5. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  6. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
Trading Center