Disparity Index with Standard Deviation Overbought and Oversold Bands

Summary

This note describes a Disparity Index indicator that compares the closing price with an exponential moving average. It calculates the standard deviation of that difference over the same lookback, then plots upper and lower thresholds at a chosen multiple of the deviation. The display colors the index red above the upper band, green below the lower band, and blue between them, making unusually large positive or negative departures easier to spot.

The author suggests that using a 130-period EMA on daily data gives a rough view resembling weekly RSI. The note provides no test results or evidence to establish that comparison, and the indicator’s bands are statistical thresholds rather than validated reversal signals. Lookback and band settings affect interpretation, and the method alone does not specify entries, exits, or risk controls.

Key ideas

• The indicator measures the closing price’s distance from an exponential moving average.
• Standard deviation of that distance sets dynamic upper and lower thresholds.
• Color changes distinguish readings above, below, or between the bands.
• The suggested weekly RSI comparison is an untested interpretation, not demonstrated evidence.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.