Disparity index is a technical indicator that is used to measure the comparative point of the most up to date closing price to the chosen figure of the moving average and represent the reported value in the form of the percentage. There are different outcomes of the disparity index and there are different meanings of the each outcome of the disparity index. For example if the value of the disparity index is greater than zero it indicates that the asset in question is gaining a momentum that is upward in direction. On the other hand if the value of disparity index is less than zero than its mean that the selling pressure on the asset is increasing with each passing day.
The disparity index is a very useful tool for the investors as with the help of this tool the investors can find out the exhaustion or the hard period in advance and this foretelling will help investors to take absolute precautions. Due to this reason this index is used with its extreme values as a tool for contrarian’s investors. In a case when the price is pushed in one extreme direction there are a very few investors that take part in the other side of the transaction. The participants of the transaction wish to close their position that ultimately results in the reversal of the price. Just like ROC signals disparity index also starts giving advance signals when the indicator crosses the zero line showing that price momentum is building.
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