Rate of Change Stock Indices Technical Analysis and Rate of Change Stock Indices Signals
Rate of Change, ROC indicator is used to calculate how much stock index price has changed within a specified number of stock index price periods. It calculates the difference between the current candlestick and the stock index price of a selected 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 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 stock indices prices the greater the changes in the ROC.
Stock Indices Technical Analysis and Generating Stock Indices Signals
Rate of Change indicator can be used to generate stock index trading signals using a number of methods, the most common ones are:
Bullish Signal - buy stock indices signal is generated when the ROC crosses above the zero center line
Bearish Signal - sell stock indices signal is generated when the Rate of Change crosses below the zero center line.
Overbought - The higher the reading the more overbought a stock indices instrument is. Values that are above the overbought level imply that a stock indices price is overbought and there is a pending stock index price correction
Oversold - The lower the reading the more oversold a stock indices instrument is. Values below the oversold level imply that a stock indices instrument is oversold and there is a pending stock index price rally.
However, during strong trending markets the stock index price will remain in the Overbought/Oversold Levels for a long time, and rather than the stock index price reversing the stock index price stock indices trend will continue for quite some time. It is therefore best to use the crossover signals as the official buy and sell stock indices signals.
Stock Indices Trend Line Breaks
Stock Indices Trading Trend lines can be drawn on ROC indicator just the same way stock indices trend lines can be drawn on stock index price charts. Because The Rate of Change is a leading indicator, the stock indices trend lines on the indicator will be broken before those on the stock index price charts. A stock indices trend line break on the Rate of Change is an indication of a bullish or bearish reversal stock indices signal.
- Bearish reversal- Rate of Change readings breaking above a downward stock indices trend line warns of a likely bullish reversal.
- Bearish reversal- Rate of Change readings breaking below an upward stock indices trend line warns of a likely bearish reversal.
Divergence Stock Indices
Rate of Change can be used to trade divergences, and to identify potential stock indices trend reversal stock indices signals. There are four types of divergences; classic bullish, classic bearish, hidden bullish and hidden bearish divergence.