From Stockcharts.com, we get a basic understanding of the ROC. Below is the except.
“The Rate of Change (ROC) indicator is a very simple yet effective momentum oscillator that 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.
ROC = ( (Today’s close – Close n periods ago) / (Close n periods ago) ) * 100
The plot forms an oscillator that fluctuates above and below the zero line as the Rate of Change moves from positive to negative. The oscillator can be used as any other momentum oscillator by looking for higher lows, lower highs, positive and negative divergences, and crosses above and below zero for signals.�
So how do we use the ROC?
The highs show how the strong a rally was and the lows put context on the strength of the sell-offs. When a stock is making new highs, but the rally strength is decreasing, it is showing that the bulls are losing steam and the sell-off potential is increasing. (IYR)
*When a stock is making new lows, but the sell-off strength is decreasing, the bears are losing steam and typically the stock rallies (BZP) and (MOS).
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