Rate of Change (ROC)
The Rate of Change (ROC) indicator monitors the momentum of the market. It calculates the market's rate of change relative to previous trading periods. When the value of the ROC indicator is high, it indicates an overbought condition in the market. On the other hand, when the value is low, it suggests an oversold state in the market.
The formula for the ROC is:
The ROC is a lower technical study. ProSticks uses a default parameter of 14 bars to calculate the ROC.
Some market technicians use the ROC as a crossover trading system. Buy and sell signals are based upon the zero-line of the indicator. When the ROC line crosses the zero-line from above to below, this indicates bearishness. On the other hand, when the ROC line crosses the zero-line from below to above, this presents an opportunity to buy.