V.10:8 (325-327): Rate of Change by Martin J. Pring
Product Description
Rate of Change
by Martin J. Pring
Respected and well-known technician and author Martin Pring debuts as a STOCKS & COMMODITIES author, writing about the rate of change oscillator, a simple method of figuring advances or declines in a given period.
The rate of change (ROC) is perhaps the simplest form of oscillator or momentum to understand and calculate. It measures the speed of an advance or decline over a specific time span and is calculated by dividing today's level by a level n periods ago and multiplying the result by 100. For example, an annualized (or 12-month) ROC is calculated by dividing the price in January 1992 by that of January 1991. Take the difference between the indicator and the 100 level and plot the result as a positive or negative number, using a reference line of 0. In this case, 101 is plotted as +1, 102 as +2, 98 as -2 and so on. The result is plotted as a positive or negative figure in a continuous oscillating series. If the price is identical in both periods, the ROC is plotted at zero. The longer the time span under consideration. the greater the significance of the trend being measured. Consequently, movements in a 10-day ROC are far less meaningful than those calculated over 12-month or 24-month time spans.
WARNING IN ADVANCE
Using ROC helps explain some cyclical movements in markets, often giving advance warning of a reversal in the prevailing trend. This indicator comes into its own during light trading-range markets. but like any other oscillator, the ROC gives misleading signals when a sustained or linear trend is under way.
Respected and well-known technician and author Martin Pring debuts as a STOCKS & COMMODITIES author, writing about the rate of change oscillator, a simple method of figuring advances or declines in a given period.
The rate of change (ROC) is perhaps the simplest form of oscillator or momentum to understand and calculate. It measures the speed of an advance or decline over a specific time span and is calculated by dividing today's level by a level n periods ago and multiplying the result by 100. For example, an annualized (or 12-month) ROC is calculated by dividing the price in January 1992 by that of January 1991. Take the difference between the indicator and the 100 level and plot the result as a positive or negative number, using a reference line of 0. In this case, 101 is plotted as +1, 102 as +2, 98 as -2 and so on. The result is plotted as a positive or negative figure in a continuous oscillating series. If the price is identical in both periods, the ROC is plotted at zero. The longer the time span under consideration. the greater the significance of the trend being measured. Consequently, movements in a 10-day ROC are far less meaningful than those calculated over 12-month or 24-month time spans.
WARNING IN ADVANCE
Using ROC helps explain some cyclical movements in markets, often giving advance warning of a reversal in the prevailing trend. This indicator comes into its own during light trading-range markets. but like any other oscillator, the ROC gives misleading signals when a sustained or linear trend is under way.
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