Price Rate of Change Indicator Formula, Settings, Strategy

Price Rate of Change Technical Indicator

The Price Rate of Change indicator (ROC) is a is a price based technical oscillator that is displayed in the sub-window. It is a pure momentum oscillator that measures the percent change in price from one period to the next. In a momentum oscillator, ROC signals include centerline crossovers, divergences and overbought-oversold readings. In this divergences fail to foreshadow reversals more often than not so this article will forgo a discussion on divergences.

Traders can find the Price Rate-of-Change (ROC) indicator also under the STUDIES section in the Zerodha Kite browser app. This technical indicator is also available in the Kite mobile App. The Period of Rate-of-Change (ROC) is 14 and we can also set the FIELD. The default FIELD is close and we can set the field open, high, low or close. You can attach the ROC indicator on to any charts likes daily, weekly, monthly or intraday. Please check the image below to understand how we attached the Rate-of-Change (ROC) indicator in HDFC Bank share price chart.

Price Rate of Change Technical Indicator

The working Principle of this indicator :

  • This indicator has an upward surge in the Rate-of-Change reflects a sharp price advance and a downward plunge indicates a steep price decline.
  • When the Rate-of-Change remains positive then prices are rising and when the Rate-of-Change is negative then prices are falling.
  • Rate-of-Change (ROC) is such an indicator, where, an advance accelerates expands into positive territory and a decline accelerates deeper into negative territory.

Calculation of Price Rate of Change Indicator:

Price Rate of Change Indicator

Price Rate-of-Change (ROC) = [(today’s closing price – closing price n periods ago) / closing price n periods ago] x 100.

Conclusions :

The indicator measures the speed at which prices are changing. The chartists can watch for bullish and bearish divergences. However, these formations can be sometimes misleading because of sharp moves in ROC indicator. The Rate-of-Change oscillator is essential to remember that prices are constantly increasing as long as the Rate-of-Change remains positive, which it may be less than before, but a positive Rate-of-Change still reflects a price increase, not a price decline. Like most other technical indicators, the Rate-of-Change oscillator too should be used in conjunction with other aspects of technical analysis.

Price Rate of Change Indicator Formula, Settings, Strategy

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