Rate of Change

Definition:

The Rate of Change (ROC) is considered a momentum indicator and measures the rate of change of price by displaying the difference between the current price and a previous price. This difference can be shown via points or percentage.

Background:

Measurements greater than zero indicate upward momentum (buying pressure) and readings below zero indicate downward momentum (selling pressure).

Filter settings for longer-term traders may use a 26 to 52-week time period and shorter term traders might use a 10 day to around 26 weeks period. The signals provided by ROC, are typically the most meaningful when the price and volume of the chart being analyzed have also set up a bullish or bearish pattern. Using ROC for additional confirmation of what has already been "read" in the chart can be a powerful addition to the assessment tools used by a technical analyst.

Practical Use:

This oscillator assists traders in different ways, for example, predicting sentiment change and possible trend or swing reversals via extreme oscillator readings extending beyond the zero line (rising or falling). Also technical analysts will watch for divergences in the ROC against price action to identify possible trend or swing reversals or general market sentiment change.