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    Disparity Index

    Definition

    Ever felt overwhelmed by the complexities of trading? The Disparity Index (DI) keeps it simple. This handy tool tells you how far away a stock's current price is from its moving average, but in percentage terms. Think of it as a yardstick that measures the gap between where the stock is and where its average suggests it should be.

    Suggested Trading Use

    So how can the Disparity Index add value to your trading toolbox? Let's explore:

  • Price Confirmation: When the DI is near zero, it often means that the price is close to its moving average, suggesting a more stable market condition. Conversely, extreme values can indicate that the stock is overbought or oversold.
  • Spot Volatility: Keep an eye on the DI when it starts to swing dramatically. Big changes can signal increased volatility and possibly signal that a trend change is coming.
  • Compare Studies: Since the DI can be applied to other studies using the Field parameter, you can get insights into how far other indicators deviate from their moving averages. This could offer you a fresh perspective on the effectiveness of those indicators.
  • Decision Support: Use the DI to reinforce or question your trading moves. If you're considering buying and the DI shows the stock is significantly below its moving average, it could be a favorable time to jump in.

    • In short, the Disparity Index helps you gauge the distance between current prices and their moving averages, offering a straightforward way to evaluate market conditions. With this tool, you can identify potential buying or selling opportunities based on how 'out of line' a stock appears to be.