Rate of Change Commodity Trading Technical Analysis & Rate of Change Trading Signals

ROC Rate of Change indicator is used to calculate how much commodity price has changed within a specified number of commodity price periods. It calculates the difference between the current candlestick and the commodity price of a chosen number of previous candles.

The difference can be calculated using Points or Percents. Rate of Change moves in an oscillation manner, where it oscillates above and below a zero center-line level. Levels above zero are bullish while those below zero center-line level are bearish.

The greater the changes are in the commodity prices the greater the changes in the ROC.

Commodities Trading Technical Analysis & How to Generate Trading Signals

Rate of Change indicator can be used to generate commodities signals using a number of methods, the most common ones are:

Commodities Trading Crossover Trading Signals

Bullish Signal - buy signal is generated when ROC crosses above the zero center-line

Bearish Signal - sell signal is generated when Rate of Change crosses below zero center-line.

Overbought/Oversold Levels:

Overbought - The higher the reading the more overbought commodity is. Values that are above the overbought level imply that a commodity price is overbought and there is a pending commodity price correction

Oversold - The lower the reading the more oversold commodity is. Values below the oversold level imply that commodity is oversold and there is a pending commodity price rally.

However, during strong trending markets the commodity price will remain in the Overbought/Oversold Levels for a long time, and rather than the commodity price reversing the commodity price trend will continue for quite some time. It is therefore best to use the crossover signals as the official buy & sell signals.

Commodity Trading Trend Line Breaks

Commodity Trading Trend lines can be drawn on ROC indicator just the same way trend lines can be drawn on commodity price charts. Because The Rate of Change is a leading indicator, the trend lines on the indicator will be broken before those on the commodity price charts. A commodity trendline break on the Rate of Change is an indication of a bullish or bearish reversal commodity signal.

• Bearish reversal- Rate of Change readings breaking above a downwards commodity trend-line warns of a likely bullish reversal.
• Bearish reversal- Rate of Change readings breaking below an upward commodity trend-line warns of a likely bearish reversal.

Divergence Commodities Trading

Rate of Change can be used to trade divergences, and to identify potential commodity trend reversal signals. There are four types of divergences: classic bullish, classic bearish, hidden bullish and hidden bearish divergence.