Rate Of Change [ROC]

Rate of change is an indicator used in technical analysis. The basic logic behind ROC is the same logic that underlies momentum: the change in price levels over time, or the slope of the trendline. However, ROC differs from momentum in the focus traders place on the time period used to calculate ROC, while the value of momentum depends much more on the trendline chosen by the technical analyst than on the time period used.

ROC is calculated by taking the current closing price, dividing it by the closing price some x number of periods ago, and multiplying the difference by 100. The resulting value for ROC is expressed as a percentage. The typical value of x is ten, although different results can be obtained by using greater or lesser values.

Of special concern to foreign exchange traders is the lack of closing prices in the twenty-four hour forex market. Because of this, the closing price used in calculating ROC is commonly taken to be the closing price of the New York Stock Exchange, as once the NYSE closes, the volume of trading tends to drop off.

ROC can be used to generate buy and sell signals in much the same way as momentum. If ROC is rising, short-term buying pressure is indicated; if ROC is falling, short-term selling pressure is indicated.

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