Price Rate of Change (ROC) - Technical Indicator

Price Rate of Change Definition :

The Price Rate of Change (ROC) displays the value of the current price relative to the price of n periods ago. The Price Rate of Change can be expressed in either points or percentages.

Price Rate of Change Formulas :

To plot the ROC in terms of points use the below formula:

Current Close - Close n periods ago

To plot the ROC in terms of percentages use the below formula:

((Today's Close - Close n periods ago)/Close n periods ago)*100

The most common period for the Price Rate of Change is 12-periods for short- term signals, while 25-periods is popular among swing traders.

Trading Signals :

Traders will buy a security when the ROC crosses above the 0 line and sell when the indicator crosses below 0. The ROC can be classified as either an oscillator or momentum indicator. As the Price Rate of Change trends higher with price, this is confirmation that the trend has legs. However, if the price of the security heads higher, while the ROC trends lower, this type of divergence often precedes a market top.

Optimizing the ROC :

The Percent Rate of Change will have completely different values for different stocks. The best method for trading the ROC is to look at previous peaks and troughs for the indicator. By comparing the current ROC value to recent levels, a trader will know what to expect in terms of price movement relative to the most recent trading activity.

Price Rate of Change Charting Example :



What Does Price Rate Of Change - ROC Mean?

A technical indicator that measures the percentage change between the most recent price and the price "n" periods in the past. It is calculated by using the following formula:

(Closing Price Today - Closing Price "n" Periods Ago) / Closing Price "n" Periods Ago

ROC is classed as a price momentum indicator or a velocity indicator because it measures the rate of change or the strength of momentum of change.

Investopedia explains Price Rate Of Change - ROC

Many traders use a value greater than zero to indicate an increase in upward momentum and a value less than zero to indicate an increase in selling pressure. However, some of the most valuable signals are generated when the price of the asset and the ROC are heading in opposite directions (known as divergence). For example, in the chart above you can see that the ROC is sloping downward while the price of the asset is increasing. This is generally an early indication that a sharp decline may be on the way.