Definition of ROC
Let’s take a look at a technical indicator used in forex to find out the change in the current price and the price data in the last. Rate of change, or shortly ROC, is a momentum indicator is used as frequently as Relatively Strength Index and Stochastic oscillator.
ROC is an important indicator since it presents to traders how rapid the chance in price is along the selected period of time.
The purpose of this technical indicator is to be used by forex traders to generate bullish or bearish signals.
When calculating ROC, 0 value is taken as a base value.
In case of upward momentum of the selected asset, the value turns to greater than 0.
On the other hand, if there is downward momentum, then the value becomes less than 0.
The Rate of Change (ROC) indicator is a great indicator to use when trading divergence trades, since the divergence between ROC indicator and the price of the asset hints the upcoming direction of the price of the selected asset.
Overbought or oversold at the sort and long-term time frames can be clearly seen in the 10 day ROC. Keep a close eye on the indicator during the trade not to miss the beginning of the market changes.
Of course, understand that there is no black and white to the story. The trend may go on when overbought or oversold indicators show dramatic values and overbought market may keep its trend for quite a while.
ROS calculation formula s below:
Y = most recent closing price of the asset
Yx = the closing price on a specified date in the past
Rate of Change (ROC) = 100 (Y/Yx)