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If Rate of Change is defined as Percent Change, why call it ROC?

Kevo
Kevo ✭
edited December 2014 in Using Technical Analysis
I just learned (or didn't realize) that Rate of Change (ROC) is Percent Change. If Rate of Change (ROC) is defined as Percent Change, which is the exact definition of Price Performance, why call it ROC, or why have it?

I was thinking there might be something different to understand about ROC. I cannot figure out what it could be other than this:

Multiple ROC's can be dropped and can have different periods on the same chart other than the period of the chart. The longer period ROC's define the larger trend. So if a smaller period ROC dips, then maybe that is a setup. Also, it seems like it can be used for overbought/oversold hence it's called ROC because it can be used for a different purpose.

In a similar way, does this mean that Price Performance can be used for OverBought/OverSold?

Best Answer

  • gord
    gord admin
    Answer ✓
    Kevo, yes there are several ways to define ROC, it all depends on what you are looking for and how you are going to use it. Raw, factor, factor% or percent change.

    For Technical Analysis we are usually looking for percent change, which I'm sure is the reason StockCharts selected that definition as the default.

    ROC raw = close - close n , raw change per n days
    ROC raw = 110 - 100 = 10

    ROC factor = close / close n , multiplier factor per n days
    ROC factor = 110/100 = 1.10

    ROC factor % = (close / close n) * 100 , multiplier factor % per n days
    ROC factor % = (110/100) * 100 = 110 %

    ROC % = 100 * ( close - close n ) / close n , percent change per n days
    ROC % = 100 * (110-100) / 100 = 10 %

    Here's a couple of articles which explain this in more detail.

    http://en.wikipedia.org/wiki/Rate_of_change
    http://en.wikipedia.org/wiki/Momentum_(technical_analysis)

Answers

  • Kevo
    Kevo ✭
    I just noticed in a Stocks and Commodities magazine article that ROC has a couple of different formulas. SCC happens to use Percent Change. S&CM mentions this formula: (Today Price)/(Price n periods ago)*100.
  • Kevo
    Kevo ✭
    Thank you Gord for the information and links. It was very helpful. I am not good at using ROC. Now that I have a better understanding, I will try to incorporate it for trend analysis.

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