Rate of Change Stocks Technical Analysis and Rate of Change Stocks Signals
Rate of Change ROC indicator is used to calculate how much stocks price has changed within a specified number of stocks price periods. It calculates the difference between the current candlestick and the stocks price of a selected number of previous candlesticks.
The difference can be calculated using Points or Percentages. Rate of Change moves in an oscillation manner, where it oscillates above and below a zero center-line level. Levels above zero are bullish while those below zero center-line level are bearish.
The greater the changes are in the stocks prices the greater the changes in the ROC.
Stock Technical Analysis and Generating Stock Signals
Rate of Change indicator can be used to generate stock trading signals using a number of methods, the most common ones are:
Stock Trading Crossover Stock Trading Signals
Bullish Signal - buy signal is generated when the ROC crosses above the zero center line
Bearish Signal - sell signal is generated when the Rate of Change crosses below the zero center line.
Oversold/Overbought Levels:
Overbought - The higher the reading the more overbought a stocks instrument is. Values that are above the overbought level imply that a stocks price is overbought and there is a pending stocks price correction
Oversold - The lower the reading the more oversold a stocks instrument is. Values below the oversold level imply that a stocks instrument is oversold and there is a pending stocks price rally.
However, during strong trending markets the stocks price will remain in the Oversold/Overbought Levels for a long time, and rather than the stocks price reversing the stocks price trend will continue for quite some time. It is therefore best to use the crossover signals as the official buy and sell signals.
Stocks Trend Line Breaks
Stocks Trend lines can be drawn on ROC indicator just the same way trend lines can be drawn on stocks price charts. Because The Rate of Change is a leading indicator, the trend lines on the indicator will be broken before those on the stocks price charts. A stocks trend line break on the Rate of Change is an indication of a bullish or bearish reversal stocks signal.
- Bearish reversal- Rate of Change readings breaking above a downward stocks trend line warns of a likely bullish reversal.
- Bearish reversal- Rate of Change readings breaking below an upward stocks trend line warns of a likely bearish reversal.
Divergence Stocks
Rate of Change can be used to trade divergences, and to identify potential stocks trend reversal signals. There are four types of divergences; classic bullish, classic bearish, hidden bullish and hidden bearish divergence.
