Rate of Change
Type
Oscillator
Short introduction
The rate of change, abbreviated to ROC, basically provides the same information as momentum. Due to the slightly different calculation, however, it may make sense to use the ROC instead of the momentum when generating trading systems.
Statement
Analog Momentum. However, the calculation differs in that the result of the subtraction is divided by the price n days ago.
Formula/calculation
Interpretation
The Rate of Change offers a wide range of possible interpretations. The most important foundations on which individual ideas can be built are described below.
A rate of change in negative territory always indicates a downward trend. If the rate of change continues to fall, the force of the downward movement increases even further. A rising rate of change below the zero line indicates a weakening of the downward trend - and thus a possible new, upward trend.
A positive rate of change indicates an upward trend in the base stock, and a rising ROC in this area continues to point to a strengthening of the upward movement. If the rate of change falls, the upward trend could soon come to an end.
The "classic" signal is provided by the breakthrough of the midpoint line. From bottom to top it is a buy signal, from top to bottom a sell signal. To avoid false signals, you can
you can also draw two auxiliary lines at the top or bottom. In this case, a signal should only be valid when one of these auxiliary lines is broken through.
Another application is the search for divergences between the price trend and the rate of change. If the rate of change still forms new highs or lows, but the base price no longer does, a trend change can be expected soon.
It is also interesting to smooth the rate of change with a GD, to use a GD of the rate of change to generate signals (similar to the MACD) or simply to apply the rate of change not to the price but to another indicator, such as a GD.
Default setting
- Depending on the application, the standard settings for the rate of change vary greatly, but common values are 10 or 25 days.
Basic trading systems
- Rate of Change (ROC)
In the "Rate of Change (ROC)" base trading system, the default setting for the period is 20 days. It provides buy signals when the indicator breaks through the zero line from bottom to top.
The base trading system, on the other hand, provides sell signals when the indicator breaks through the zero line from top to bottom. The close-out signals are hidden in the screen for a better overview using the command SIGNALS PHASE WISE, as they coincide with the following buy or sell signals.