Introduction
ROC is a technical indicator that measures the percentage change between the most recent price and the price "n" periods in the past.
ROC is classed as a price momentum indicator or a velocity indicator because it measures the rate of change or the strength of momentum of change.
The ROC indicator is momentum in its purest form. It measures the percentage increase or decrease in price over a given period of time. Think of it as the rise (price change) over the run (time). In general, prices are rising as long as the Rate-of-Change remains positive. Conversely, prices are falling when the Rate-of-Change is negative. ROC expands into positive territory as an advance accelerates. ROC dives deeper into negative territory as a decline accelerates. There is no upward boundary on the Rate-of-Change.
Formula
ROC = [(Close - Close n periods ago) / (Close n periods ago)] * 100
Advantage
The Rate-of-Change oscillator measures the speed at which prices are changing. An upward surge in the Rate-of-Change reflects a sharp price advance. A downward plunge indicates a steep price decline. Like all technical indicator, the Rate-of-Change oscillator should be used in conjunction with other aspects of technical analysis.