The Rate-of-Change (ROC)
In the technical analysis of forex markets, the Rate-of-Change (ROC) is a momentum indicator that measures the percentage change between the current price and the price from some days ago. The ROC is plotted below the price chart and it fluctuates above and below the zero line, from positive to negative values. Like any other momentum indicator, the ROC is able to identify overbought and oversold areas. This is why it is one of the most used indicator by forex traders.
As a rule of thumb, when prices rise, the ROC gets positive. Conversely, when prices fall, the ROC gets negative. An upward move by the ROC means a sharp price rise. If ROC is positive and rising, buying pressure is increasing. If ROC is positive but falling, buying pressure is decreasing, and the rise in price is slowing down. A downward move by the ROC into negative territory means a price decline. A strong downward movement indicates a steep price decline.
If ROC is negative, it implies selling pressure on the forex market, which results in a decrease in currency pairs’ price. The more negative ROC is, the stronger the selling pressure, and the faster the decline in price is. When ROC crosses above the zero line, forex traders read it as a buy signal; when it crosses below the zero line, forex traders read it as a sell signal.