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 chosen number of previous candlesticks.

The difference can be calculated using Points or Percentages. Rate of Change moves in an oscillation manner, where it oscillates above & 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 prices the greater the changes in the ROC.

Gold Analysis and How to Generate Signals

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

Gold Cross Over Trade Signals

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

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

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 overbought 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 price trend will continue for quite some time. 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 indicator just the same way trend lines can be drawn on price charts. Because The Rate of Change is a leading indicator, the trend-lines on the indicator will be broken before those on the price charts. A xauusd trendline break on the Rate of Change is an indication of a bullish or bearish reversal signal.

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

Divergence Gold

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