Disparity Index Technical Indicator
Posted by Edward Dy on July 4th, 2008
Photo Credit: pfala
The disparity index is a measure of the percentage position of the current closing price of a particular asset in relation to the moving average of that asset. Traders oftentimes attribute this measurement to Steve Nison who wrote the book “Beyond Candlesticks.”
The disparity index can have either a positive or a negative value. When the value is positive, this means that the price of the asset price is surging rapidly, whereas a negative value means that the price is declining rapidly. A value of zero indicates that the asset’s price at the moment is exactly in line with its moving average.
The disparity index when it crosses the zero line indicates a very rapid change in the trend of the asset in question. It is therefore a reliable early-warning indicator of the increasing momentum of the asset.
Considering that overbought and oversold assets are very susceptible to rapid reversals of prices, the disparity index is an excellent indicator as to when following the trend of a given asset might prove a dangerous proposition.
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