Disparity Index Indicator

 

#momentum #meanreversion #overextension 

Inventor: Popularized by Steve Nison 

Shows how far price has stretched away from its moving average, in percentage terms: (Close – MA) / MA x 100. Price is like a rubber band tied to its average; the further it stretches, the harder it tends to snap back. 

Default period: 10 (MA period) 

Line above zero indicates price is above its average. Line below zero indicates price is below its average. 

Extreme readings show an overstretched market. 

Useful readings: 

High positive reading: Price stretched far above average, pullback risk 

Deep negative reading: Price stretched far below average, bounce likely 

Crossing above zero: Price reclaimed its average, bullish shift 

Crossing below zero: Price lost its average, bearish shift 

Staying mildly positive in an uptrend: Healthy trend, dips shallow 

Extreme reading with a reversal candle: Strong mean-reversion setup 

What counts as extreme differs per stock; check its own past readings 

Objective rules: 

Bullish: Disparity Index crosses above zero. 

Bearish: Disparity Index crosses below zero. 

Stretch fade long: Reading below its own 100-bar low zone AND a bullish reversal candle forms 

Stretch fade short: Reading above its own 100-bar high zone AND a bearish reversal candle forms 

No-chase rule: Avoid fresh longs when reading is at an extreme high 

What makes it unique: 

It states the oldest chart truth – price stretches from its average and snaps back – as one clean percentage. The percentage scale makes stretch comparable across time and stocks. 

Scan the QR code to learn more.

The indicator table value in TradePoint & RZone also provides you with a list of all values of this indicator for any group of stocks. This will allow you to compare the readings of this indicator across different stocks.

This indicator is also available in the System Builder on RZone & TradePoint for all charting methods. Using the system builder, you can develop various strategies based on the different conditions already present in this indicator. Additionally, it can be used with other indicators or price patterns to develop effective trading strategies. For any group of stocks and market segments, you can scan and backtest stocks based on those strategies.

Default period: 10 (MA period) 

Default period: 40 (MA period)

The indicator is applicable to all types of charting. It is calculated based on the number of columns on P&F charts, bricks on Renko charts, lines on Line-break charts, candles on Heikin-Ashi charts, and lines on Kagi charts. While the formula and reading of the indicators remain the same, they become more dynamic on these charts.