Disparity Index

What Is Disparity Index?

The disparity index is a technical indicator that measures the relative position of an asset's latest closing price to a chose moving average and reports the value as a percentage.

Understanding Disparity Index

The presentation of the disparity index — basically to European and American traders — is credited to Steve Nison, who talked about it in his book Beyond Candlesticks: New Japanese Charting Techniques Revealed (John Wiley and Sons, 1994). "A widely utilized Japanese device is the disparity index," he composed.

Steve Nison said the disparity index is "like Western dual moving averages, yet this technique takes into consideration better market timing."

As a formula, the equation for the disparity index would be communicated as:
$\begin &\text\ =\ \frac{(\text\ -\ n\text{-PMAV)}}{n\text{-PMAV}\ \times\ 100}\ &\textbf\ &n\text{-PMAV} = n\text{-Period moving average value }\end$
A value greater than zero — a positive percentage — shows that the price is rising, proposing that the asset is picking up vertical speed. On the other hand, a value under zero — a negative percentage — can be deciphered as a sign that selling pressure is expanding, compelling the price to drop. A value of zero means that the asset's current price is precisely steady with its moving average.

Like the Rate of Change (ROC) indicator (another momentum indicator), the disparity index generates important signals when it gets over the zero line since it is an early signal of an up and coming quick change in the trend, and hence the price. Extreme values in either bearing might demonstrate that a price correction is going to happen.

A disparity index over zero proposes up momentum, while under zero might demonstrate a rise in selling pressure.

Disparity Index Example

Antagonist investors, specifically, similar to the disparity index. The extreme values of this indicator can be an exceptionally helpful instrument for them to predict periods of weariness — that is, whether an asset is overbought or oversold, and subsequently powerless against an unexpected change.

When the price is unnecessarily pushed in one heading, there are not many investors to take the opposite side of the transaction when the participants wish to close their position, at last leading to a price reversal. So the disparity index is a decent indicator in warning while a trending market is getting to an extreme. what's more, may be ready for a correction or a reversal.

Just like other momentum indicators, a trader ought to utilize the disparity index indicator related to different devices while attempting to spot potential reversals or affirm a trend.

Features

• The disparity index is a momentum indicator utilized by technical analysts that shows the course an asset is moving relative to a moving average.
• Large moves in one or the other course for the index might portend that a price correction is ahead.
• Likened to Rate of Change (ROC) and other comparable indicators, the disparity index is best utilized related to different devices.