Technical Analysis, Studies, Indicators:
ROC (Rate of Change)
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The Rate of Change (ROC) is a simple technical indicator
that displays the percent difference between the current price and the
price n-time periods ago.
ROC = (tClose - tClose N periods ago) /
tClose N periods ago * 100
ROC is an oscillator that fluctuates above and below the zero
line. When price increases the ROC moves up and when price decreases the ROC
falls. The greater the change is in the price, the greater change is in the ROC.
The ROC could be used as any momentum technical indicator by
analyzing positive and negative divergence, looking for high lows and zero line
crossovers. The ROC could be used to define overbought and oversold markets. The
higher ROC is considered a more overbought security and the lower ROC is the
more oversold security. However in many cases the extremely overbought/oversold
ROC may indicate the continuation of the recent trend.
It is a good practice in to scroll the chart back in the recent
past (several frames back) to see the correlation between ROC and the price
change and try to apply it to the current market.
As well as other momentum indicators ROC may generate fake
signals and it could be a good practice to use this indicator in conjunction
with other not momentum technical indicators including the volume based
indicators.
Chart 1: ROC (Rate of Change)
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