Disparity Index
Tue, Apr 15The Disparity Index is a technical indicator that assesses the relative position of an asset’s latest closing price in relation to a specific moving average, expressing this value as a percentage.
Traders often credit this measurement to Steve Nison, as outlined in his book, "Beyond Candlesticks."
The Disparity Index can yield either a positive or negative value. A positive value signifies that the asset’s price is increasing rapidly, while a negative value indicates a rapid decrease in price. A value of zero means that the asset’s current price aligns perfectly with its moving average.
Trading signals are produced when the Disparity Index crosses the zero line. This crossover serves as an early indication of a potential rapid change in the trend, and consequently, the price.
Extreme values in either direction may suggest that a price correction is imminent. Nison’s book proposes that the Disparity Index can reveal whether an asset is overbought (in the case of a positive value) or oversold (in the case of a negative value).
Given that overbought and oversold conditions are susceptible to swift price reversals, the Disparity Index serves as a valuable indicator of when it may be risky to follow the trend of a particular asset.
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