ROC, the rate of change, is used by traders to create bullish or bearish signals. ROC shows the border between the current price and the earlier price of the selected time frame.
ROC goes up when the prices trend up
ROC goes down when the prices trend down
How to Calculate ROC?
Rate Of Change is a technical indicator and is used to find out the percentage change between current price and earlier prices the asset had. Being a momentum indicator, it is just as important as Relativity Strength Index and Stochastic Oscillator.
In order to calculate ROC, you start with base value of 0. In case of an increase a value greater than 0 is assigned. On the other hand, in case of a decrease a value less than 0 is assigned.
Bullish Reversal
If the ROC is increasing and the price of the asset is going in a bearish direction, it is a “heads up” call. It is possible that the price of the selected asset is on the way to a bullish reversal.
Bearish Reversal
If the ROC is decreasing and the price of the asset is going in the bullish direction, it is a “heads down” call. You might be witnessing the price of the asset on its way to a bearish reversal.
10-Day Time Frame
10-day ROC is a good way to see overbought or oversold indicators. By keeping an eye on ROC during the trade, traders are able to see the beginning of the market changes and make appropriate decisions.
The calculation is explained below:
MRP (Most Recent Closing Price of the asset)
CPP (Closing Price on the specific date in the Past)
Rate of Change (ROC) = 100 (MRP/CPP)
Results
If the most recent close of the asset is less than it was more than 10 days ago, then ROC base point is below the equilibrium and the prices are going down.
If the most recent close of the asset is higher than it was more than 10 days ago, then ROC base point is above the equilibrium point and prices are going up.
