This study plots the percentage change between a current price and a price that occurred a user-specified number of periods/bars earlier. ROC is centered on zero; it is positive when Price is above its prior value and negative when it is below.
Characteristics and Usage
ROC may simply be used to measure the percentage change of a market between two bars. As its name suggests, ROC may be considered a measurement of the “slope” of the market.
ROC is similar to Momentum, since it is a direct measure of market movement. The advantage of a percentage change calculation is that it is not sensitive to different price levels.
This provides for:
•A more accurate comparison between the market action of different commodities or stocks.
•A more accurate comparison of market action at different times when the commodity or stock was trading at a fundamentally different price level. This is particularly important for stocks where a $1 point move on a $100 stock is 1% but a $1 move on a $10 dollar stock is 10%.
ROC is often used as an oscillator-type study. Accordingly, users often define OB/OS conditions to identify when the market has attained a significant move.
Selling an OB market or buying an OS market is effective in a trading range market but is likely to result in large losses during a trending market; if the market trends the ROC may stabilize indicating the market is continuing to move at a persistent rate. Traders may want to use an additional condition or set of conditions to confirm a trading signal.
ROC is an unbounded study making OB/OS levels difficult to define.
ROC, like other oscillators, may be used to identify divergence or confirmation of a new price extreme. A divergence indicates the market has lost its momentum or has become highly volatile and is likely to consolidate or reverse. Confirmation indicates the market is still accelerating away from its moving average and follow through is likely.
A difficulty with using divergence analysis on ROC is its calculation is based off of two specific dates and changes from bar to bar in the earlier date will affect the value of ROC to the same degree as changes in the current price.
Calculation
ROC = ((Current PRICE / Prior PRICE) * 100) – 100
Rate of Change Parameters
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Parameter |
Description |
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Display |
Opens sub-window to set parameters •Color = Line color. •Weight = Line thickness. •Display = Line style: line or histogram. •ShareScale = Determines whether sharing of the vertical scales between studies is accepted. Auto = System determine whether sharing is feasible. On = Scale is shared regardless of the functions and studies displayed. Off = Scale is not shared. ShareScale must be On if study is overlaid on a study with multiple outputs. |
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MarkIt |
Opens Specify Conditions window. |
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Period |
Number of bars in the lookback range. |
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Price |
Price used to calculate study values. |
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OB/OS |
Opens sub-window with overbought and oversold parameters: •Color = Select a color for the line. •Weight = Choose a thickness for the indicator. •Type = Choose fixed or dynamic. Fixed = uses Level as a fixed OB/OS value. Dynamic = uses Standard Deviation and Lookback for a dynamic OB/OS value:. OB: MA(@,Sim,lookback) + factor * STDDEV(@,lookback) OS: MA(@,Sim,lookback) - factor * STDDEV(@,lookback) where @ is the study •Std Dev = Multiplier used to calculate high and low. •Lookback = Number of bars to compare to the current bar. •Level = Percentage of average OB/OS used to calculate predictor Ob/OS levels. •Display = Click this check box to display the component. •Style = Choose a line style. |