What is the ROC (rate of change)?

The ROC rate of change is one of the most popular indicators used in technical analysis, by which it is possible to show how the price of the security we are studying has changed over a specific period. It is classified among momentum indicators, or otherwise known as momentum indicators.

Should ROC be taken as a leading indicator of change?

The approach to this varies, but it is recommended to use this indicator only as a complementary, for example, to the MACD indicator.

How should the ROC index be interpreted?

There are mainly four interpretations, which can give different signals to the investor. A good interpretation can help you make buying and selling decisions.

The first interpretation will be to find a buy signal, which will appear when the intersection of the non-growing Signal line by the change indicator from below. On the other hand, a sell signal will be when the intersection of the non-growing Signal line by the indicator occurs from above.

Another possible interpretation is to see a buy signal when the ROC indicator pierces the zero level from below. On the other hand, it should be considered a sell signal when the indicator pierces the zero level from above. At this point, however, it should be remembered that this interpretation and the signals shown from it are not entirely certain and are therefore rarely used on their own. This interpretation can be used as a confirmation of other indicators.

In the third interpretation, overbought and oversold levels should be established on the ROC chart. These levels should be set so that the area between them is about 90% of the indicator’s run. The upper limit of this area will indicate an overbought level, and the lower limit will indicate an oversold level. In this case, the signal to buy will be when the ROC indicator pierces the oversold level from below, while the sell signal will occur when the ROC pierces the overbought level from above.

The last possibility of interpretation is to find divergence between the graph of the change indicator and the graph of the instrument’s price. When there is a downward trend of the indicator and at the same time an upward trend of the price, then you can expect a correction or change in the trend, or the situation can occur in such a configuration that the trend of the indicator will be upward, the trend of the price will be downward, and then you can expect a change in the downward trend and an increase in the price of the course.