Rate of Change Analysis & Rate of Change Signals

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

The difference can be calculated using Points or Percents. ROC moves in an oscillation manner, where it oscillates above & below a zero centerline level. Levels above zero are bullish while those below zero centerline level are bearish.

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

How to Use Rate of Change (ROC) Indicator in Chart

XAUUSD Analysis & How to Generate Signals

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

Gold Cross Over Trade Signals

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

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

ROC, Rate of Change Indicator Analysis in XAUUSD - ROC, ROC Indicator

Oversold/Overbought Levels:

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

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

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

XAUUSD Trend Line Breaks

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

Bearish reversal- ROC readings breaking above a downwards trendline warns of a likely bullish reversal.
Bearish reversal- ROC readings breaking below an upwards trendline warns of a likely bearish reversal.

Divergence XAUUSD

ROC can be used to trade divergences, & to identify potential trend reversal signals. There are 4 types of divergences: classic bullish, classic bearish, hidden bullish & hidden bearish divergence.

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