It is a technical oscillator that measures the rate of ascent or descent in the price of a financial instrument. It measures the difference between the current price and the price n periods ago (Close Recent – Close n periods ago). If the difference is above the zero-line and rising then it is presumed that the uptrend is accelerating. If the difference is below the zero-line and falling, the downtrend is accelerating. If the difference is above the zero-line and falling, the uptrend is decelerating. Similarly, if the difference is below the zero-line and rising, the downtrend is decelerating. ROC follows the general oscillator analysis:
- A crossing of the oscillator above the zero-line triggers a buy signal.
- A crossing of the oscillator below the zero-line triggers a sell signal.
- Divergence between the oscillator and price gives early signals of a reversal.
- Overbought/Oversold levels are not easily spotted on the ROC Oscillator since it is unbounded. Hence, visual inspection is used to identify extreme readings above and below the zero-line.
