Price Rate Of Change Indicator (ROC)
Rate of Change (ROC) is a momentum-based technical indicator that measures the percentage change in price between the current price and the price of a specified number of periods ago. The ROC indicator is displayed relative to zero, while the indicator moves up to positive territory if price changes are in upward direction, and going to the negative territory if price changes are in downward direction.
The indicator can be used to spot divergences, overbought and oversold conditions, and centerline crossovers. The Rate of Change indicator (ROC), also called simple momentum or movement, is a bend in pure movement. The ROC is calculated by comparing the fair value with the price ‘n’ periods. The chart generates an oscillator that fluctuates up and down from the zero line as the speed or Rate of Change changes from positive to negative. Like other momentum indicators, ROC overbooks or overbought and acceleration or oversold zones can be customized according to market conditions. Remember that a security can be oversold / overbought longer and can be oversold / overbought over a long period.
- The rate of exchange (ROC) oscillator is a dynamic and limiting signal strength used in technical analysis against the zero-level midpoint.
- An increase in the ROC above zero usually indicates a high while a fall in the ROC below zero indicates a decrease in price.
- When the price consolidates, the ROC will gradually move closer to zero. In this case, it is important that buyers note the total cost of the trend since the ROC will provide little insight unless the merger is confirmed.
How this indicator works
- The increase on the Rate-of-Change reflects the rapid price first. Falling in price is a low price.
- In general, prices increase if the Rate-of-Change remains positive. On the other hand, prices fall if the Rate-of-Change is negative.
- Expands the ROC into a positive territory as the speed increases. The ROC is moving deeper into negative territory while a decline has accelerated.
Rate of Change (ROC) calculation
ROC is the percentage change between the current price relative to a previous closed price of ‘n’ previous periods.