Disparity Index: Moving-Average Deviation and Signal Interpretation
Summary
The Disparity Index expresses the closing price's percentage deviation from an exponential moving average over a selected period. Its formula subtracts the average from the close, divides by the average, and multiplies by one hundred. The document includes an example using a period of thirteen and plots zero as the reference level, where zero indicates that price equals the average.
A move across zero can be read as a change in recent momentum, with crossings potentially interpreted as bullish or bearish. The document also describes a contrarian use: unusually large positive or negative deviations may suggest that price could revert toward its moving average. It provides the formula and interpretations, but no tested thresholds, market-specific guidance, or performance results. The described signals are therefore concepts for analysis, not evidence of a reliable trading system.
Key ideas
- The Disparity Index measures closing price deviation from an exponential moving average as a percentage.
- Its zero level corresponds to price matching the moving average.
- Crossings of zero may be interpreted as changes in recent momentum.
- Large deviations from zero may interest contrarian traders expecting a return toward the average.
- The document gives no tested thresholds or evidence of trading performance.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.