ROC (Rate of change)
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The Rate of change (ROC) indicator, which is also referred to as simply Momentum, is a momentum oscillator in its purest form. This indicator measures the percent change in price from one period to the next. The ROC calculation compares the current price with the price "n" periods ago. The plot forms an oscillator that fluctuates above and below the zero line as the Rate-of-Change moves from positive to negative. As a momentum oscillator, ROC signals include centerline crossovers, divergences, and overbought-oversold readings.
ROC is also used as an overbought/oversold indicator.
Overbought – the higher the ROC indicator reading, the more overbought a currency pair is. Indicator values above the overbought level imply that a currency is overbought and there is a pending price correction
Oversold – the lower the ROC indicator reading, the more oversold a currency pair is. Indicator values below the oversold level imply that a currency is overbought and there is a pending price rally.
However, during strong trending markets, the price will remain at Overbought/Oversold levels for a long time, and rather than the price reversing the price trend will continue for a while. It is therefore best to use the crossover signals as official buy and sell signals.
Bullish Signal - buy signal is generated when the ROC crosses above the zero center line
Bearish Signal - sell signal is generated when the ROC Indicator crosses below the zero center line.
ROC is the percentage change between the current price with respect to an earlier closing price 'n' periods ago:
ROC = [(Close - Close n periods ago) / (Close n periods ago)] * 100
Period of MA for envelopes, 20 by default.
The indicator looks as follows on the chart:
