The Easiest Guide About Rate of Change

Hello, let’s talk about price movements and how to predict it changes.

Rate-of-Change or simply ROC is one of the tools that you have to know if you want to predict price movements correctly.

How it works

A lot of traders use this oscillator because it has a simple and clear idea in its basis. ROC measures the percent change in price from one period to the next and compares the current price with the price “n” periods ago. Its plot fluctuates from negative to positive around the central line (a zero line) and defines price movement directions.

How to use

First, open “Settings” (click on the wheel close to an asset name) and go to the “Indicators” tab. Secondly, click on “ROC” and configure settings or just click “Apply” to use default settings.

Signals

There are three types of ROC signals:

1. Zero line cross.

a) Buy when the ROC plot crosses a zero line from bottom to top. It means that the price had been growing during the specified period.

b) Sell when the ROC plot crosses a zero line from top to bottom. It means that the price had been falling during the specified period.

This is a short-term type of signals.

Picture 3. Zero line cross signals. Red sell signals, Green buy signal

a) Buy when the ROC plot drops below the historical ROC minimums. It means that the price of an asset had been decreasing for a long time and now it’s oversold.

b) Sell when the ROC plot grows above the historical ROC maximums. It means that the price of an asset had been rising for a long time and now it’s overbought.

Picture 4. Extremes trading. The green line is the line of oversold asset price and the red line is the line of overbought asset price.

Divergence trading

a) Buy when you find a positive divergence.

b) Sell when you find a negative divergence.

Picture 5. Divergence trading. Green lines positive divergence.

Picture 6. Divergence trading. Red lines negative divergence.

A “divergence” means a situation when an asset price and the indicator’s line move to the opposite directions.

For advanced strategies you can use ROC along with the following indicators:

• Parabolic SAR
• MA (Simple or Exponential moving averages)
• Bollinger Lines