InvestorQ : What is ROC in technical analysis and what does it indicate?
Rutuja Nigam made post

What is ROC in technical analysis and what does it indicate?

Answer
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Arti Chavan answered.
1 year ago


The Rate of Change (ROC) is another extremely popular Momentum Oscillator. The Rate-of-Change (ROC) indicator, which is also referred to as simply Momentum, is a pure momentum oscillator. This is also based on the concept of zero lines and evaluates the momentum of the stock based on how it cuts above and below the zero line. The ROC calculation compares the current price with the price "n" periods ago. The period (n) is to be decided based on the volatility of the stock and the time period under consideration that the view is based on. The plot forms an oscillator that fluctuates above and below the zero line as the Rate-of-Change moves from positive to negative. Like other momentum indicators, ROC has overbought and oversold zones that may be adjusted according to market conditions. Normally, you buy a stock that has become oversold and you sell a stock that indicates that it has become oversold. The value addition that ROC indicates is that it not only focuses on whether the stock is overbought or oversold but also underscores how long the stock is likely to remain overbought or oversold. That is because, a security can become oversold / overbought and remain oversold/overbought for an extended period. When it comes to identifying the overbought and oversold zone and timing your trades accordingly, the ROC is extremely useful.