Price Rate of Change Indicator
Price rate of change or ROC indicator is an important technical analysis tool for measuring an instrument's price changes. ROC is widely used by short-term and swing traders to find oversold and overbought levels, to analyze trend strengths and to find trend changes. The price rate of change indicator resembles volume rate of change or VROC indicator, but is blind to volume changes.
Price rate of change is expressed in both points and percentage. It is calculated as the difference between current price and the price ‘n’ periods ago.
When calculated in percentage, the above ROC value is divided by the number of periods and then multiplied by 100.
ROC rises with rise in current price and falls with fall in price. Many traders use a center line (a 0 line or 50 point line) for easy evaluation and to get better results. The normal time-period for ROC indicator is 12 days (short-term traders) or 25 days (swing traders), but traders can use custom periods for getting the desired results.
With price rate of change indicator, overbought conditions are identified when ROC stays higher to 0 line and oversold conditions are identified when ROC stays below to 0 line. When using point values, ROC values above 75 and below 25 denote extreme overbought and oversold conditions. Divergence of price and ROC are also very good indicators. Bearish divergence is identified when ROC falls and price increases; and bullish divergence is identified when ROC rises but price falls.
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Price rate of change is expressed in both points and percentage. It is calculated as the difference between current price and the price ‘n’ periods ago.
ROC (point) = Price today – Price 'n' days ago.
When calculated in percentage, the above ROC value is divided by the number of periods and then multiplied by 100.
ROC (%) = (Price today – Price 'n' days ago) / 'n') x 100
ROC rises with rise in current price and falls with fall in price. Many traders use a center line (a 0 line or 50 point line) for easy evaluation and to get better results. The normal time-period for ROC indicator is 12 days (short-term traders) or 25 days (swing traders), but traders can use custom periods for getting the desired results.
With price rate of change indicator, overbought conditions are identified when ROC stays higher to 0 line and oversold conditions are identified when ROC stays below to 0 line. When using point values, ROC values above 75 and below 25 denote extreme overbought and oversold conditions. Divergence of price and ROC are also very good indicators. Bearish divergence is identified when ROC falls and price increases; and bullish divergence is identified when ROC rises but price falls.
NobleTrading.com Offers Online Stock Trading, Online Options Trading
Online Futures Trading, Online Forex Trading
Worldwide Brokerage Service, Day Trading Brokerage
posted by NobleTrading at
9:27 AM
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