Technical Studies: Rate of Change (ROC)

The Rate-of-Change oscillator plots the percentage change in the security's price over the past n trading periods. The default parameter is 12 rolling periods (minutes/hours/days/weeks/months, based on the selected frequency).

Interpretation: The ROC indicator fluctuates above and below the zero line, indicating a positive or negative price trend or momentum over the selected period. The slope of the ROC line either upward (bullish) or downward (bearish) suggests accelerating price momentum. Some analysts will use a trending ROC with higher highs or lower lows with a price chart or with other momentum indicators to confirm a bullish or bearish trend.

Crosses above (bullish) and below (bearish) the zero line may indicate the end of a trend and, in some cases, trend reversals. Bullish divergence is a positive ROC signal that occurs when a security's price reaches lower lows while the ROC forms a higher low. Bearish divergence is a negative ROC signal that occurs when a security's price reaches higher highs while the ROC forms a lower high.

In contrast, ROC is sometimes used as a trend-following indicator when it reaches extreme low or high levels. If the ROC is making new highs while prices fail to reach new highs, it may indicate the continuation of a bullish trend. If the ROC is making new lows while prices fail to reach new lows, it may indicate the continuation of the bearish trend.

Calculating the Rate of Change: The Price ROC calculation takes into account closing prices for the security and is calculated as follows, using the defaulted 12 periods:
ROC = [(Close - Close 12 periods ago)
divided by the Close 12 periods ago]
× 100