Another momentum oscillator you could use is the ROC (Rate of Change indicator) and it is used to calculate the price percentage change between two periods. The ROC indicator can be used as a guideline to determine oversold and overbought conditions, detect divergences, and to confirm that a price moves.
Generally, the ROC is positive as long as prices rise, while it is negative when prices fall. When the ROC surges up, it indicates a sharp increase in the price, while a plunge downward reflects a steep decline in price.
It is possible to use the ROC with a very wide range of time frames, between 1 and 200 candles. Periods of 15 and 12 are most commonly used with the ROC indicator, as these are perfect for medium and short term trading. Generally, higher ROC values indicate that the prices are changing faster, while lower ROC values are an indication that prices are changing slower.
As mentioned before, the ROC indicator indicates momentum. This means that it compares current prices with previous prices as they were a predefined number of periods in the past. The present price is then divided by the past price and shown as a percentage. Depending on what the period for the indicator calculation was set to, it can act as either a trending indicator when the period is set to more than 20, or an oscillator when the period is set to between 5 and 14. As the ROC does not use an averaging pattern when it is calculated, it is synchronized with the price indicator, and at times even surpasses it.
Configuring the ROC with OlympTrade
Always use a separate Technical analysis window when setting up the indicator on Olymp Trade’s platform. The ROC can be found in the “Indicators” tab under the “Oscillators” section.
The indicator’s basic period should be left at 14. The ROC indicator can function as either trending or an oscillator. The mechanics of its signal depends on which calculation period has been set. If the period is set to between 5 and 15 candlesticks, it will cause the indicator to act as an oscillator, while with a period more than 20, it will act as a trending indicator, showing a trend momentum that is more global.
Calculations
ROC = (Today’s Closing Price / Closing Price N bars ago) * 100
With N being the Time period.
In other words, the ROC calculates the change between the current closing price and a past closing price N periods ago and expresses it as a percentage, i.e.
Where
P0 – Current Price
P-n – Past Closing Price
Here is another variation of the ROC calculation:
