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Technical Analysis, Studies, Indicators:
ROC (Rate of Change)
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Studies
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)
V. K.
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Technical studies classified by the types of technical analysis |
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