Rate of Change
Type
Momentum oscillator
Short introduction
The rate of change ("ROC") indicator provides basically the same statement as the momentum. However, because of the different calculation, it may be useful to use the ROC instead of the momentum when generating trading systems.
Statement
Compare Momentum. The calculation differs, however, in that the result of the subtraction is still divided by the price at n days ago.
Formula/calculation
ROC = ((C - Ct-n+1)÷Ct-n+1)×100
Interpretation
The rate of change offers a wide range of possible interpretations. Below, you find the principles on which you can base your own individual strategies.
A negative rate of change always indicates a downward trend. If the rate of change drops further, the force of the downward movement also increases. A rising rate of change below the zero line indicates a weakening of the downtrend, thus indicating a possible new uptrend.
A positive rate of change indicates an uptrend in the base stock, a rising ROC in this range continues to indicate a strengthening of the uptrend. If the rate of change falls, the upward trend could soon come to an end.
The "classic" signal is provided by the breakthrough of the centre line. A crossing up through this line may be used as a signal to buy, a crossing down through this line as a signal to sell. To avoid false signals, you can also draw two auxiliary lines upwards or downwards. In this case, a signal should only be considered if one of these auxiliary lines is broken.
Default setting
- Period: 9 periods
Example: Rate of Change
