Rate of Change Analysis & Rate of Change MT5 Indicator

Rate of Change, ROC 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 & the price of a specified 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 & 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.

Forex Analysis and Generating Signals

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

Cross over Signals

Bullish Signal - buy signal is generated when ROC crosses above 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 a currency pair is. Values that are above the overbought level imply that a currency is overbought and there a pending price correction

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

However, during strong trending markets the price will remain in the Overbought/Oversold Levels for a long time, & 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 & sell signals.

Trend Line Breaks

Trend-Lines can be drawn on ROC indicator just the same way trendlines can be drawn on price charts. Because The Rate of Change is a leading indicator, the trendlines on the indicator will be broken before those on the price charts. A trend line break on the ROC 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- ROC readings breaking below an upwards trendline warns of a likely bearish reversal.

FX Divergence Trading

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