Rate of Change

Rate of Change

Main ROC Trading Strategies FAQ

  • What is the ROC indicator?
    The ROC indicator is shorthand for Price Rate of Change Indicator. It is a momentum based indicator that measure the percentage change in price, thus giving traders insight into how rapidly price is rising or falling. The obvious takeaway is that the faster price is changing the stronger the momentum of the trend. The indicator is commonly used to spot overbought and oversold conditions, divergences, and centerline crossovers. Because the indicator is prone to whipsaws it is best used as a confirming indicator.

     
  • How to trade with ROC Indicator strategy?
    Since the ROC indicator is a momentum indicator displayed as a histogram it is very easy to read and interpret. When it is above zero it shows upward price momentum, and when it is below zero it indicates downward price momentum. The further away from zero the indicator moves, the stronger the momentum of the price move. Traders can use this information either to confirm trend changes, or to inform them when a trend is gaining or losing momentum. The ROC is considered to be a confirming indicator and is typically used in conjunction with other indicators.

     
  • How do you read the ROC Indicator?
    The ROC Indicator is typically used to confirm price moves or detect divergences, as well as being used to determine when markets are overbought or oversold. Reading the ROC indicator is fairly simple. When it is above the zero line and moving higher it indicates the trend is getting stronger. However if it rises too far, say to the +3 level, that could indicate an overbought market. If it is falling back towards the zero line it indicates slowing momentum and a potential change in trend. The same is true but reversed when the indicator is below zero.

     

** Disclaimer – While due research has been undertaken to compile the above content, it remains an informational and educational piece only. None of the content provided constitutes any form of investment advice.

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