Like other momentum indicators, ROC has overbought and oversold zones that may be adjusted according to market conditions.
Remember, a currency pair can become oversold/overbought and remain oversold/overbought for an extended period.
How to use ROC
In general, prices are rising as long as the Rate-of-Change remains positive. Conversely, prices are falling when the Rate-of-Change is negative.
ROC expands into positive territory as a rise in price accelerates.
An upward surge in the Rate-of-Change reflects a sharp price advance.
If ROC is positive and rising, buying pressure is increasing.
If ROC is positive but falling, buying pressure is decreasing, and the rise in price is slowing down.
ROC moves deeper into negative territory as a decline accelerates.
A downward plunge indicates a steep price decline.
If ROC is negative, it implies selling pressure, which results in a decrease in price.
The more negative ROC is, the stronger the selling pressure, and the faster the decline in price is.
When ROC crosses above 0, it’s often considered a buy signal.
When ROC crosses below 0, it’s often considered a sell signal.
How to Calculate?
ROC is the percentage change between the current price with respect to an earlier closing price n periods ago.
ROC = [(Today’s Close Price – Close Price n periods ago) / Close Price n periods ago] x 100
ROC for the 10-day period is computed as follows:
ROC = [(Today's Close Price – Close Price from 10 days ago) / Close Price from 10 days ago] x 100
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