How to use the ROC indicator on the Olymp Trade platformPosted by Olymptrade Guide on December 15th, 2020 About the Rate of Change indicator The technical indicator which is called the Rate of Change (ROC indicator) measures the change in the price in percentages. This change is being monitored from a determined number of periods in the past up to the present price. The indicator oscillates around 0 value. It enters the upper positive area when the change in the price has an upward direction. It moves into the lower negative zone when the change is to the downside. Thanks to the ROC indicator we can detect divergences, local oversold and overbought areas and centerline crossovers. Setting up the ROC indicator How to attach the ROC indicator to the chart on the Olymp Trade platform
The indicator oscillates around 0 value, but it can go unlimitedly high as it shows the change in the price which can evolve infinitely in time. When the ROC is rising, it usually means there is an uptrend. Be careful, however, because this indicator measures the change only from the specified point in the past. The same is for the falling ROC. It normally confirms the downtrend, but not always. Generally, when the ROC is situated above the 0 line there is a bullish bias. When the ROC is below 0, normally there is a bearish bias. ROC on the 1-hour EURUSD chart There is a possibility to use the Rate of Change indicator to give signals of upcoming trend change when you look for places of divergence. Divergence happens when the direction of the price on the chart and the direction of the ROC indicator are not in harmony. For instance, there is a divergence when the asset’s price rising during a certain period of time whilst the ROC is gradually falling. This is a signal that the trend will most probably reverse and start downward. Remember, the divergence can last a long time, so it does not mean you should jump into the trade right away. The divergence between the price and the ROC How to calculate the Rate of Change (C2 – C1) / C1 * 100 C1 is the closing price n periods before the most recent period. How the Rate Of Change indicator is calculated Once you have chosen n value the most suitable for you, find C2. This is the closing price of the most recent period. Then look for C1 – the closing price n periods before the most recent period. Use the formula and get the result. Repeat these steps with every new finished period. The Rate of Change and the Momentum Indicator When we are using the ROC we have to divide the difference between the price of the present period and the price n periods earlier by the price n periods before the most recent period. Thanks to this we will receive value in percentages. The Momentum indicator is very similar but with an additional line – moving average calculated on the ROC The readings from both indicators are pretty much similar, although the traders have their favourites. They will choose one or the other according to individual preferences. Some shortcomings of the Rate of Change indicator The ROC is sensitive to whipsaws. This is true that it can help to confirm the price consolidation when it oscillates around the 0 line. But when there is price consolidation the changes in the price are very small and the indicator is moving towards 0 value. It can give a false trend trade signal. When you are using the ROC as a divergence indicator, bear in mind that the signals may come too early. Sometimes the ROC already shows a divergence, but the price continues the previous direction for a while longer. Use the divergence to confirm a trade, but do not use it as an entry trade signal. The last thing I want to tell you is to remember about the Olymp Trade demo account. It is free of charge, thus you trade completely risk-free. This is just an excellent place to try new indicators like the ROC for yourself. See how it looks like, how it behaves and how you feel about it. Share your comments with us. Like it? Share it!More by this author |