# Definition of the disparity index

By Mark Holland / last week ## What is the disparity index?

The disparity index is a technical indicator that measures the relative position of an asset’s most recent closing price to a selected moving average and reports the value as a percentage.

A value greater than zero (a positive percentage) shows that the price is rising, which suggests that the asset is gaining momentum to the upside. Conversely, a value less than zero (a negative percentage) can be interpreted as a sign that the selling pressure is increasing, forcing the price to drop. A value of zero means that the current price of the asset is exactly consistent with its moving average.

### Key takeaways

• The disparity index is a momentum indicator used by technical analysts that indicates the direction an asset is moving relative to a moving average.
• Large movements in either direction of the index can herald that a price correction is coming, that is, if the asset is overbought or oversold.
• Like the Rate of Change (ROC) and other similar indicators, the disparity index is best used in conjunction with other tools.

## Explanation of the disparity index

As a formula, the equation for the disparity index would be expressed as: