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Rate of Change

The Rate of Change (ROC) indicator measures the percentage change in price from one period to the next by comparing the current price to the price n periods ago. As a momentum oscillator, ROC signals include centerline crossovers, divergences, and overbought-oversold readings, though divergences often fail to predict reversals. The ROC calculation is the change in close price over a period divided by the close n periods ago multiplied by 100. In general, prices are rising when ROC is positive and falling when negative, with ROC expanding into positive territory as advances accelerate and diving deeper into negative territory as declines accelerate.

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Ravi Kumar
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135 views

Rate of Change

The Rate of Change (ROC) indicator measures the percentage change in price from one period to the next by comparing the current price to the price n periods ago. As a momentum oscillator, ROC signals include centerline crossovers, divergences, and overbought-oversold readings, though divergences often fail to predict reversals. The ROC calculation is the change in close price over a period divided by the close n periods ago multiplied by 100. In general, prices are rising when ROC is positive and falling when negative, with ROC expanding into positive territory as advances accelerate and diving deeper into negative territory as declines accelerate.

Uploaded by

Ravi Kumar
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Rate of change:

The Rate of change (ROC) indicator, which is also referred to as simply Momentum, is a pure momentum oscillator that measures the percent change in price from one period to the next. The ROC calculation compares the current price with the price "n" periods ago. The plot forms an oscillator that fluctuates above and below the zero line as the Rate of change moves from positive to negative. As a momentum oscillator, ROC signals include centerline crossovers, divergences and overbought-oversold readings. Divergences fail to foreshadow reversals more often than not so this article will forgo a discussion on divergences. Even though centerline crossovers are prone to whipsaw, especially short-term, these crossovers can be used to identify the overall trend. Identifying overbought or oversold extremes comes natural to the Rate of change oscillator.

Calculation
ROC = [(Close - Close n periods ago) / (Close n periods ago)] * 100

Interpretation
As noted above, the Rate of change indicator is momentum in its purest form. It measures the percentage increase or decrease in price over a given period of time. Think of it as the rise (price change) over the run (time). In general, prices are rising as long as the rate of change remains positive. Conversely, prices are falling when the rate of change is negative. ROC expands into positive territory as an advance accelerates. ROC dives deeper into negative territory as a decline accelerates there is no upward boundary on the rate of change. The sky is the limit for an advance. There is, however, a downside limit. Securities can only decline 100%, which would be to zero. Even with these lopsided boundaries, rate of change produces identifiable extremes that signal overbought and oversold conditions.

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