Disparity Index Calculator

The Disparity Index Calculator is a technical analysis tool used to evaluate how far an asset’s current price deviates from its moving average. It measures the percentage difference between the asset’s most recent closing price and a selected moving average. Traders and investors use this calculator to assess momentum, identify potential entry or exit signals, and determine if an asset is overbought or oversold.

This indicator is commonly applied in stock, forex, and cryptocurrency markets to monitor trends and anticipate reversals. By calculating the disparity index, users can better interpret whether the price is experiencing unusual strength or weakness relative to its average trend, making it a useful tool for both short-term trading and longer-term investment strategies.

Formula of Disparity Index Calculator

Disparity Index (%)

Disparity Index = [(Current Closing Price – Moving Average) / Moving Average] × 100

Where:

• Current Closing Price is the most recent price at which the asset closed.
• Moving Average is the average price of the asset over a defined period, such as 20 days or 50 days.

Interpretation:

• A positive disparity index indicates that the current price is above the moving average, suggesting upward momentum.
• A negative disparity index means the current price is below the moving average, pointing to downward momentum.
• Extreme positive values may signal that an asset is overbought, while extreme negative values may indicate that it is oversold. Both conditions often precede a market correction or reversal.

This formula provides an objective measure of price divergence, allowing traders to make more informed decisions based on the relationship between price and trend.

General Terms for Disparity Index Calculation

Here is a table of commonly used terms that are often searched when discussing the disparity index and its practical applications:

Term	Description
Disparity Index	A percentage showing how far the current price deviates from a moving average.
Moving Average	The average of prices over a set number of periods, used to smooth trends.
Current Closing Price	The last price at which an asset was traded during a market session.
Overbought	A condition where the price is considered too high compared to recent trends.
Oversold	A condition where the price is considered too low compared to recent trends.
Technical Indicator	A mathematical calculation based on price, volume, or open interest.
Price Divergence	When the asset’s price and its indicator trend in opposite directions.
Trend Reversal	A change in the direction of a market trend.
Short-Term Trading	A strategy focused on buying and selling over short periods for quick gains.
Long-Term Strategy	Investing with a focus on fundamental growth over extended timeframes.

These terms are essential for understanding how to use and interpret disparity index values effectively.

Example of Disparity Index Calculator

Let’s look at a practical example of using the Disparity Index Calculator.

Example: Interpreting Disparity in Stock Trading

Assume you are analyzing a stock with the following data:

• Current Closing Price = $110
• 20-Day Moving Average = $100

Now apply the formula:

Disparity Index = [(110 – 100) / 100] × 100 = (10 / 100) × 100 = 10%

A 10% positive disparity index indicates that the stock is trading well above its 20-day average. This could suggest strong upward momentum, but depending on market conditions, it might also signal that the stock is becoming overbought, prompting traders to prepare for a possible correction.

Example: Bearish Divergence

Suppose the same stock closes at $92 while the 20-day moving average remains $100:

Disparity Index = [(92 – 100) / 100] × 100 = (-8 / 100) × 100 = -8%

This -8% disparity index indicates that the stock is underperforming relative to its average, potentially signaling bearish momentum or an oversold condition.

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