Rate-of-Change Oscillators (ROC): –
It is very popular oscillator which measures the rate of change of the current price as compared to the price a certain number of days or weeks back.
Note- oscillator(Refer to a family of technical indicators)
The ROC has to be used along with the price chart. The buying and selling signals indicates by the ROC should also be confirmed by the price chart.
The ROC values oscillate across the zero line. When the ROC line is above the zero line, the price is rising and when it is below the zero, the price is falling.
Ideally, one should buy a share that is oversold and sell a share that is overbought. In the ROC chart, the overbought zone is above the zero line and the oversold zone is below the zero line.
Many analysts use the zero line for identifying buying and selling opportunities.
Upside crossing (from below to above the zero line) indicates a buying opportunity, while a downside crossing (from above to below the zero line) indicates a selling opportunity.
Trading Rules and Interpretation:
1. Once ROC is above the zero line and keeps on rising, it shows that the trend is not only up but the speed of the uptrend is accelerating.
2. When the Rate of Change is above zero line but falling, it shows that the speed of the uptrend is slowing down.
3. When the Rate of Change is above zero and again starts rising and crosses the previous top, it shows that the uptrend is very much in its speed.
4. When Rate of Change is below zero line but falling, it shows that downtrend is increasing its speed.
5. When Rate of Change is below zero but starts rising upward, it shows that the speed of the downtrend is slowing down.
6. If Rate of Change is below zero and starts falling, it shows that the downtrend has accelerated its speed once again.