The Basics of Rate of Change

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The rate of change as an oscillator is one of the simplest indicators available. It is the change in price over a certain amount of days (usually 12). The change in price is then added to the oscillator RSI style, or shown on the chart as a constant line, outlining the change in the last 10 periods.

The rate of change, though very simple, is also very profitable. The rate of change can be applied as any other indicator in a variety of ways. It can be used as an oscillator, used with divergence trades, or even as a cyclical indicator.

Using rate of chance as a cyclical indicator

If you want to improve your trading, here is a very quick and easy way to boost your portfolio. Using the rate of change with your own proven strategies, you’ll be able to track and profit on the market easily.

First, add the rate of change to your chart window and select a period, such as 12 days. Next, take a look back at how the ROC changes day to day, or even in a culmination of weeks. Many stocks, especially those with the highest volume, follow around the same ROC ups and downs over time. This cyclical pattern can help you find tops and bottoms, even if your other proven strategies turn up nothing.

Rate of change with other strategies

The rate of change is good for strategies that work with breakouts, such as strategies for gapping up or gapping down. When the market moves heavily in one direction, such as in a breakout, the rate of change can be used as an exit point. When the rate of change hits a certain level, profit can be taken before the market reverses. The rate of change is great for setting trading goals; you could even use a rate of change indicator with a period of one just to see the percentage change each bar as it correlates with your goals.

How to generate profits

While the rate of change can be configured in many different ways, the most common is with a 12 period or day outlook. The others are 25 or even as high as 200 days or periods. The longer the ROC, the smoother the line, while the shorter the period, the more volatile the indicator. Technical analysis bodes very well with ROC traders who trade on momentum, as a 200 day ROC shows how overbought or oversold the trade is in the last year. Custom indicators and proven trading strategies all do well with the rate of change; it’s easy enough to use and good enough to profit.

Learn how to master day trading by downloading two of Trading EveryDay’s FREE products: Tools of the Trade eBook and a Trading Plan Planner. Dedicated to helping people become profitable traders , Leroy Rushing, a professional day trader, trading coach, and author, is the CEO of Trading EveryDay, a distinguished provider of educational trading products and services.

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Topics: Personal Finance | Comments Off

Tags: custom indicators, How to generate profits, improve your trading, Personal Finance, proven strategies, proven trading strategies, strategies for gapping up

Article Citation
MLA Style Citation:
Rushing, Leroy "The Basics of Rate of Change." The Basics of Rate of Change. 30 Oct. 2008. uberarticles.com. 9 Feb 2012 <http://uberarticles.com/finance/personal-finance/the-basics-of-rate-of-change/>.

APA Style Citation:
Rushing, L (2008, October 30). The Basics of Rate of Change. Retrieved February 9, 2012, from http://uberarticles.com/finance/personal-finance/the-basics-of-rate-of-change/

Chicago Style Citation:
Rushing, Leroy "The Basics of Rate of Change" uberarticles.com. http://uberarticles.com/finance/personal-finance/the-basics-of-rate-of-change/

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