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ROC indicator settings: nuances and subtleties
ROC indicator settings: nuances and subtleties
Anonim

What are ROC indicator settings? Our fast-paced time has not bypassed trading in the financial markets: long-term transactions have become a thing of the past, an increasing number of traders are choosing intraday - trading, or day trading. The need to make quick trading decisions places high demands on the set of indicators used for technical analysis and forecasting the likely movements in the price of an asset.

Indicator of the rate of price change. Terminology

The rate of change of price indicator (PriceROC) or simply the ROC indicator for MT4 is a price-based technical oscillator. Which is displayed in the subwindow of the trading terminal. PROC is often referred to as a purely momentum oscillator.

As the name implies, the PROC or ROC oscillator shows the rate of price change based on a lookback over a certain period. The difference can be calculated using points or percentages. The signal line moves like a typical oscillatory signal, oscillating near the zero line. Levels above zero arebullish while levels below the zero center line are bearish.

Indicator signals

The difference between the ROC indicator and momentum is that the latter is absolute.

Like all oscillators, the one under study can be used to determine the time the market enters a trend. It can also be used as a trend identification indicator as well as to measure the divergence in momentum and price.

The first chart below shows the ROC oscillator applied to the daily chart. The setting for this indicator is the default 9-period setting.

Daily chart

The PROC indicator moves relative to a fixed zero line and indicates the acceleration and decay of the impulse. The signal can be used to buy from pullbacks in an uptrend or sell in a downtrend.

Calculation of signal line values

Produced according to the formula:

RoC=(S/Sn) x 100%,

  • variable S is the current closing price,
  • а Sn is the closing price of the previous period n.

There are various settings that can be used for the ROC generator. The default settings used for this indicator are 9 periods. Other commonly used indicator settings include 14 and 25.

Readers should remember that there is no absolute number that can magically give the correct setting. Rather, it is important to analyze the signals for each traded instrument and timeframe used. To use and mostsuitable settings for the ROC indicator.

The price volatility of the analyzed asset is, of course, of paramount importance. Using too low a number can result in very erratic readings, while using a higher configuration setting can potentially smooth the ROC to the point where signals can be generated with unacceptably long delay.

It is important for day traders to find a balance between the 9 and 14 periods of the daily chart.

The settings window for the ROC indicator does not require a description. It is standard for oscillators.

Setting indicator parameters

Trend identification

When using the 5-period setup, the ROC oscillator signal is unstable. These signals are difficult to identify rising and falling price impulses.

To illustrate the calculation with an example, let's assume that the price of an asset today is $50. The price of the asset 9 days ago was $40. Then based on the ROC for 9-period lookback, the calculation would be ((50 - 40)/40)100=25.

How to use the rate of change oscillator in technical analysis?

The following are a few ways to use ROC Speed ​​Oscillator signals in trading.

The described methods are used mainly for day trading. And also to determine the time to enter a trade using the ROC indicator. The method of analysis with the price change indicator is almost the same as with most other commonly used oscillators. Such as MACD, for example.

Use as a toolsynchronization

The ROC indicator can be used as a timing tool in trend analysis. Price never moves in a straight line. This means that the price is making a series of highs and lows within the trend.

buy sell

It is optimal for a trader to buy near the low in an uptrend pullback or sell near the high in a downtrend. The ROC indicator can help traders find these points. Of course, there are several ways to know the trend.

Trends can be analyzed either by highs and lows, or by signals from trending technical indicators such as moving averages.

The first method of using ROC to analyze safe market entry uses a simple setup. It includes moving averages and an oscillator.

As a trend indicator

Reversal Prediction

This example applies a moving average to the daily chart. As well as the ROC indicator.

The concept is simple. Buy on the weakest momentum in an uptrend, or sell when momentum begins to wane. In the area marked with a square, you can see that the signal of the indicator is ahead of the bullish signal of the moving averages.

At this moment, the signal of the indicator is also weak, but it starts to grow. This suggests that the price is likely to rise. Additional confirmation can be obtained from candlestick patterns. Other methods of signal confirmation can be fundamentals.

Use ROC for identificationdivergences

Divergence is a common signal of all oscillators, no matter what name they are called. The concepts of divergence are the same, regardless of whether a trader prefers to use a rock indicator, relative strength index (RSI) or stochastic.

When the oscillator makes a new low, but the price does not, or when the price makes a high, but the oscillator does not, this is a signal of a possible correction.

Price Divergence

Price rate of change oscillator and divergence

There are several examples of divergence in the price chart above. Here the price made a higher high, but the ROC oscillator displayed a lower extreme.

This divergence, known as a bearish divergence, can be exploited in two ways. Watching this phenomenon, a trader can either enter the market with a short trade or wait for the price correction to complete and then enter a long position with the trend.

Other forms of divergence include hidden bearish or bullish divergences, which are more powerful and can signal a trend continuation.

Zero line

The Zero Line Crossover signal is another common oscillator signal. Here, buy or sell signals can be taken based on when the ROC moves above or below the zero line. Of course, using this method requires some experience, as not all zero line crossings are the same.

Sometimes the ROC can drop below the zero line just to turnback above. This is important to remember. The indicator reacts to the price, and not vice versa. Therefore, traders should focus on price and price action before trading this simple method with the ROC indicator.

Combination with trend indicators can be useful. This will help traders identify a trend based on a moving average crossover and then test it with ROC.

There are a number of other methods you can use to trade with the zero line of the Price rate of change indicator crossing, including price action patterns.

ROC Breakout Trading

Momentum oscillators like PROC are very good in trading ranges and breakouts. This is because breakouts usually occur with strong momentum. It is common knowledge that not all breakouts are successful and this is where a momentum oscillator like PROC can help.

For breakout trading, you can use the daily or intraday chart with the appropriate settings for the ROC oscillator. However, a balance must be found so that the applied settings do not generate many false signals and do not allow for a large delay. The signal line of the indicator should not be too jagged or too smooth.

In addition to the studied one, there is also a more advanced version of the oscillator-indicator S ROC, when calculating the signal line, it uses not the closing price, but the values ​​of EMA s.

As soon as the price strongly breaks through the resistance level, or the upper range, the indicator also crosses the zero line. The trajectory also rises higher and hence this impliescontinue moving.

The above methods simply describe the many ways to trade with the PROC or ROC oscillator. Of course, there are more ways to use it than the ones in this article.

Which markets work best with the ROC oscillator?

There is no right answer to this. Some may argue that the speed of the random oscillator is ideally used with commodity markets. This may be true, but it can also be used with other assets, including futures or forex. The thing is, ROC is just a mathematical formula.

intraday trade

It doesn't matter for an indicator what price its algorithm calculates, be it a stock, marketable oil or its futures, a currency pair or something else. You can use the Price ROC indicator in almost any market. The only requirement is to use the correct settings according to the volatility of the instrument being traded.

ROC is also time-independent and just looks at sessions. It can be used on the daily and 5-minute charts. Futures day traders or even stock day traders can apply the rate of change oscillator to the chart and time frame of their choice.

In conclusion, the Rate of Change Oscillator is a momentum indicator and can be used to identify short-term ups and downs in prices within a trend.

This simplicity allows traders to easily apply the formula across multiple markets and timeframes.

It is important to remember that the ROC indicator can rise in both bull and bear markets. This is because momentum rises and falls. Traders should not mistake ROC for a directional indicator, this is the most common mistake one can make.

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