The ROC (Rate of Change) index is a technical analysis indicator that measures the percent of change in the price of an asset over a certain period. It is used to assess the speed and direction of price movement. ROC helps traders to identify trends, pivot points and overbought or oversold markets.
How does the indicator work?
The ROC value is expressed as a percentage, showing how much the price has changed relative to the previous period.
- Trend identification:
- Rising ROC values indicate a strong bullish trend.
- Falling values indicate a bearish trend.
- Overbought/oversold:
- Too high positive ROC values may indicate overbought.
- Too low negative values signal oversold.
- Divergences:
- If the price updates a new high and the ROC does not confirm it (or vice versa), it can be a signal of a weakening trend and a possible reversal.
How to use ROC in trading?
- Trend trading:
- Use ROC to confirm the direction of the trend. For example, if the ROC is steadily rising, it is a good buy signal.
- Determining entry and exit points:
- When ROC reaches extremes (overbought or oversold) look for reversal signals.
- When ROC reaches extremes (overbought or oversold) look for reversal signals.
- Combination with other indicators:
- ROC works effectively in combination with oscillators (RSI, MACD) or moving averages to filter out false signals.
- Zero line crossing:
- A top-to-bottom crossing can be a sell signal.
- A crossing from bottom to top can be a buy signal.
The tool can be found in the list of available indicators under the name “Rate of change”.
