Trading the Volume Rate of Change (Volume ROC)

Volume Rate of Change Indicator

Omega introduced the Volume Rate of Change indicator in the year 1997. This indicator uses the current volume and a prior volume to create an oscillator that is plotted as a histogram. The traders may change the input as well as the period length.

FAQ

How do you find the rate of change of volume?

The volume rate of change indicator comes out by dividing the changed volume over the last n-period with volume n-periods ago. So, the result is the percentage that the volume has changed in the previous n-periods.

What is the volume change rate?

The main aim of the VROC indicator is to show whether or not a volume trend is developing in either an up or down direction. And as the name suggests it measures the rate of change in volume. Using the volume traders can analyze stock’s movement and price behavior quite easily.

How to calculate the volume rate of change?

To calculate the Volume Rate-Of-Change indicator divide the volume that has changed over the last n-periods by the amount n-periods ago. Hence, the result is the % that the volume has changed in the last n-periods.

How to read the volume rate of change?

To read the volume rate of change, you need to remember a few important things. If today the volume is higher than in past n-periods, the ROC will be a positive number. And if today the volume is lower than the n-periods ago, surely the ROC will be a negative number.

How To Attach Volume Rate of Change Indicator On Chart?

On Zerodha Kite

The V-ROC indicator is available in the STUDIES section of Zerodha Kite. It is also available in Kite Mobile App. The Period is 14 and if the traders want to change the period value then they can change it. Traders can use this Volume Rate of Change indicator on any time frame charts including daily, weekly, monthly, or intraday. You can also check the image below to understand how to attach the VROC indicator to the HDFC Bank share price chart.

Volume Rate of Change Indicator in Zerodha Kite

On Upstox Pro

Now, check the chart below from the Upstox Pro trading platform. It is a one-month-based chart. Here, v-roc is clearly showing.

Volume Rate of Change Indicator on Upstox

The main role of the indicator is it helps in the measurement of the rate of change in volume over a certain session.

How to Trade with the Volume Rate of Change?

A strong trend prevails in the market relating to the Bullish or Bearish market of this indicator. When the Price of the VROC indicator is negative, then this indicates a possible change in the direction of a trend currently prevailing. Like other Volume Oscillators, the indicator tends to fluctuate around a central line, mainly known as a zero line.

On the Basis of Indicator Moving Up or Down

When the volume rises, the value of the VROC indicator is plotted above the zero lines and vice versa. As same as, when the Price of a Security falls, the indicator moves down. Look at the arrow below. Take a buy from the gap when the indicator line moved above the zero lines.

Buy Signal of Volume ROC

On the Basis of the Breakout in the Indicator

In a minor change in Volume, the VROC slope tends to reach the central line. But with a major change in Volume, the indicator follows a breakout.

Volume Rate of Change Chart

Overbought and Oversold moments often lead to sudden Trend Reversals of this indicator. In this indicator, if the trend is upward and the V-ROC turns upward then go long and vice versa.

On the Basis of Divergence

Here, divergence appears with the opposite movement. As you can see the above picture is the bullish divergence. Here, the price made lower lows while the indicator made higher highs. It implies that the price is going to move up soon.

Divergence Pattern in VROC Indicator

Pros and Cons of the Volume Rate of Change Indicator

Pros

  1. VROC indicator checks the speed at which a trend is moving or deviating. One can anticipate the future trend and determine the pace at which the trend will move.
  2. In this indicator sudden changes in the price of securities can give a lot or take a lot. So, the VROC indicator evaluates the peaks, bottoms, and breakouts of security through a Slope of a Line.
  3. The indicator is the only indicator that gauges a security’s Volume Differences. This indicator helps traders in determining a stock’s ability to crossover, support, or resist, along with the trend changes and the strength of a trend.
  4. The Volume Rate of Change indicator gives a clear picture of the trends prevailing in the market like Bullish or Uptrend and Bearish or Downtrend.

Cons

  1. The traders believe that the biggest disadvantage of the VROC indicator is that it is blind to the current price situation of a commodity.
  2. In this indicator, neither takes price into consideration nor is it affected by a change in price.
  3. It is necessary that a long period is taken into consideration in order to smooth the data otherwise the data will be a mere zigzag of this indicator.
  4. In a zigzag course of the V-ROC indicator, the decision-making is neither simplified nor trusted instead it is impossible to predict trends in short periods.

Conclusion

In the Rate of Change indicator, we often use the volume, and price as the parameters to determine the direction of a trend. V-ROC indicator is utilized to form an estimate of the volatility in a Security Volume. This indicator clearly depicts the direction of a trend like positive or negative. This V-ROC indicator is often used to confirm price activity and discover divergences in Stock Volume.

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Author: Ankita Sarkar

Ankita is a graduate in English language and she has also done her MBA from the Calcutta University. She has a high knack in the stock markets. She is a NISM certified Research Analyst. An experienced stock market content writer Ankita is also trading successfully on her own account.

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