InvestorQ : How exactly the ROC is calculated and how is it useful as an indicator?
Arti Chavan made post

How exactly the ROC is calculated and how is it useful as an indicator?

Answer
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1 year ago


ROC is a momentum measure and hence it not only measures the direction but also the intensity of the move. An upward surge in the Rate-of-Change reflects a sharp price advance. A downward plunge indicates a steep price decline. The general rule is that prices are rising as long as the Rate-of-Change remains positive. Conversely, prices are falling as long as the Rate-of-Change is negative. Typically, it has been noticed that the ROC expands into positive territory as an advance accelerates or gains momentum along the way. Similarly, the ROC moves deeper into negative territory as a decline accelerates. Let us also look at how exactly one can calculate the ROC for a stock price time series.

ROC is the percentage change between the current prices with respect to an earlier closing price (n) periods ago. This (n) is a subjective judgement based on the time frame for your trade and also based on the current volatility in the stock.

ROC = [(Today’s Closing Price – Closing Price n periods ago) / Closing Price n periods ago] x 100