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Computerized Investing > Second Quarter 2013

Rate of Change Indicator

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by CI Staff

The term “momentum” is used frequently in investing. In fundamental analysis, it can refer to strong and/or growing sales, earnings, etc. In technical analysis, it is used to describe the speed or force of price movement. Common momentum indicators measure the change in price from one period to another or the percentage change in price from one period to another. In this installment of Technically Speaking, we focus on the momentum indicator called rate of change (ROC).

The rate of change (ROC) indicator is a pure momentum oscillator that measures the percent change in price over the last n periods. In other words, the indicator compares the latest price (typically the closing price) with the (closing) price n periods ago. The resulting oscillator fluctuates above and below the zero line, indicating shifts from positive to negative. Similar to other oscillators, ROC signals include centerline crossovers and overbought/oversold conditions.

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