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.
Volume Rate of Change FAQ
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.
The main aim of the volume rate of change indicator is to shows 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.
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.
To read the volume rate of change, you need to remember a few important things. If today the volume is higher than past n-periods, the ROC will be a positive number. And if today the volume is lower than n-periods ago, surely the ROC will be a negative number.
How To Attach Volume Rate of Change Indicator On Chart?
The traders are want to know more about the V-ROC indicator, then they can find it 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 to any time frame charts includes daily, weekly, monthly or intraday. You can also check the image below to understand how to attach the VROC indicator in the HDFC Bank share price chart.
The above chart is taken from the Upstox trading platform. It is a one-month based chart. Here, v-roc is clearly showing.
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 Bearish or Bullish 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 zero lines.
- 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.
- 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.
- 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.
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.
Advantages of V-ROC Indicator
- 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.
- 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.
- 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.
- V-ROC indicator is given a clear picture of the Trend prevailing in the market likes Bullish or Uptrend and Bearish or Downtrend.
Disadvantages of V-ROC Indicator :
- The traders believe that the biggest disadvantage of the VROC indicator is that it is blind to the current price situation of a commodity.
- In this indicator, neither takes price into consideration nor is it affected by a change in price.
- 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.
- 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.
However, in the Rate of Change indicator, volume and price are often used as the parameters to determine the direction of a trend. V-ROC indicator is utilized to form an estimate of Volatility in a Security Volume. This indicator clearly depicts the direction of a trend likes positive or negative. In this V-ROC indicator is often used to confirm price activity and discover divergences in Stock’s Volume.