Price Rate of Change (ROC)

Overview
The Price Rate of Change (ROC) displays the value of the current price relative to the price of n periods ago. The Price Rate of Change can be expressed in either points or percentages.

Price Rate of Change Formulas
To plot the ROC in terms of points use the below formula:

Current Close - Close n periods ago

To plot the ROC in terms of percentages use the below formula:

(Today's Close - Close n periods ago)

-------------------------------------------------- * 100

Close n periods ago

The most common period for the Price Rate of Change is 12-periods for short- term signals, while 25-periods is popular among swing traders. The time period you trade will be the determining factor for this input.

Trading Signals
Traders will buy a security when the ROC crosses above the 0 line and sell when the indicator crosses below 0. The ROC can be classified as either an oscillator or momentum indicator. As the Price Rate of Change trends higher with price, this is confirmation that the trend has legs. However, if the price of the security heads higher, while the ROC trends lower, this type of divergence often precedes a market top.

Optimizing the ROC
The Percent Rate of Change will have completely different values for different stocks. The best method for trading the ROC is to look at previous peaks and troughs for the indicator. By comparing the current ROC value to recent levels, a trader will know what to expect in terms of price movement relative to the most recent trading activity.

Al Hill is the co-founder of mysmp.com (My Stock Market Power) which provides education on all topics finance; including stocks, bonds, options, futures, forex, technical analysis, and more! Please visit http://www.mysmp.com for more free financial educational content.

AFP - The total value of shares listed on stock markets in the Gulf region plummetted by 250 billion dollars in October as indexes sank by an average 25 percent amid the global market meltdown.

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