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The Price Rate of Change (or ROC) indicator shows how price has changed over a certain time period either in points or as a percentage. The ROC shows how markets advance and decline in wave-like fashion by measuring how much prices have changed over the time period in question. The ROC rises as prices rise, and falls as prices fall. Popular time periods include 12 and 25 days providing an ROC for short to intermediate term trading. Generally, the higher the ROC, the more overbought a security is, and conversely the lower the ROC, the more oversold a market. It is always worth remembering however, that any market may remain overbought for some considerable time, and like other indicators based on the same ideas, an extremely overbought or oversold reading may suggest that the trend will actually continue. Day trading strategies employing the ROC are many and varied, but the subjectivity of the indicator makes it difficult for traders less than expert to use. To calculate the ROC in points, subtract the price "x" time periods ago from today's price (for example x = 12). To calculate it as a percentage, perform the same calculation as before, divide by the price "x" periods ago, then finally multiply by 100. |
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