Rate of change is a technical market indicator which is of interest to technical analysts. Mathematically it is the division of the price today with the price n days ago. Particularly we may take n to be 30 days.
Another way of calculating rate of change is by sinply findind the change in price over/ divided by the n, i.e. the number of days. For example, if the price today is $100 and the price n days ago was $80, then the indicator can be calculated as follows, i.e. (100-80) / n = 20 / n and if n is taken to be 30 days, then 20 / 30 = 0.66. If someone wants it as a percentage, then they can multiply by 100 which it will give 66%.
Trading rules for this indicator may need to see the stock how it is doing and find the trends and lowest/ highest values and note the ROC value. Then from this it may be fairly simple to find the turning points of the stock and devising a trading rule, i.e. trying to follow the natural cycles of the stock by noting down the values of the ROC when the stock is turning to go up, or down. Then we can use the values of ROC as indicators for buying/ selling, i.e. changing our positions of the stock.
ROC may be particularly interesting because it shows the velocity of the stock, i.e. how fast is changing for that particular number of days, i.e. how fast it is going up, or down. By taking the maximum values of this indicator, i.e. finding the fastest time that it goes up, or down, then we can build an indicator to buy, for example, when the stock is going up fast, or sell when the stock is falling fast.
The ROC may bring some erratic behavior to the stock, as you can see from the calculation above, it is only relying on one value from the past to calculate the ROC. Since daily stock prices may be erratic anyway, then using one single stock price value from the past to create an indicator, it may just bring some error to the calculations and exactly when the stock is turning to go up, or down.
Overall, it can be said that it is a good indicator to add to the arsenal of judging the stock and its ups and downs. This indicator my go hand in hand with the Moving Average indicator for example and help to validate the Moving Average indicator as well, before placing a trade.
In overall, it is a useful indicator.
Another way of calculating rate of change is by sinply findind the change in price over/ divided by the n, i.e. the number of days. For example, if the price today is $100 and the price n days ago was $80, then the indicator can be calculated as follows, i.e. (100-80) / n = 20 / n and if n is taken to be 30 days, then 20 / 30 = 0.66. If someone wants it as a percentage, then they can multiply by 100 which it will give 66%.
Trading rules for this indicator may need to see the stock how it is doing and find the trends and lowest/ highest values and note the ROC value. Then from this it may be fairly simple to find the turning points of the stock and devising a trading rule, i.e. trying to follow the natural cycles of the stock by noting down the values of the ROC when the stock is turning to go up, or down. Then we can use the values of ROC as indicators for buying/ selling, i.e. changing our positions of the stock.
ROC may be particularly interesting because it shows the velocity of the stock, i.e. how fast is changing for that particular number of days, i.e. how fast it is going up, or down. By taking the maximum values of this indicator, i.e. finding the fastest time that it goes up, or down, then we can build an indicator to buy, for example, when the stock is going up fast, or sell when the stock is falling fast.
The ROC may bring some erratic behavior to the stock, as you can see from the calculation above, it is only relying on one value from the past to calculate the ROC. Since daily stock prices may be erratic anyway, then using one single stock price value from the past to create an indicator, it may just bring some error to the calculations and exactly when the stock is turning to go up, or down.
Overall, it can be said that it is a good indicator to add to the arsenal of judging the stock and its ups and downs. This indicator my go hand in hand with the Moving Average indicator for example and help to validate the Moving Average indicator as well, before placing a trade.
In overall, it is a useful indicator.
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