ROC

Rate of Change

- Technical Analysis, Indicators

Technical Analysis

Technical Analysis, Studies, Indicators:

ROC (Rate of Change)

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Description: price based technical analysis, indicators for market timing trading systems, charting and chart analysis.

The Rate of Change (ROC) is a simple technical indicator that shows the percentage difference between the current price and the price n periods ago.

ROC = (Close - Close N periods ago) / Close N periods ago * 100

ROC is an oscillator that fluctuates above and below the zero line. When the price rises, the ROC moves up and when the price declines, the ROC falls. The greater the change in the price, the greater is the change in the ROC.

The ROC can be used as any momentum technical indicator by analyzing positive and negative divergence, looking for high lows and zero line crossovers. The ROC can be used to define overbought and oversold markets. The higher ROC is considered a more overbought security and the lower ROC is a more oversold security. However, in many cases, the extremely overbought/oversold ROC may indicate a continuation of the recent trend.

It is a good practice to scroll the chart back to the recent past (several frames back) to see the correlation between ROC and the price change and then to try to apply it to the current market.

Like other momentum indicators, the ROC may generate fake signals. It is a good idea to use this indicator in conjunction with other non- momentum technical indicators, including volume based indicators.

Chart 1: ROC (Rate of Change)

NASDAQ 100 ROC Chart

V. K.

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