# Rate of Change (ROC) indicator guideline

ROC is a price-based MT5 indicator that allows you to figure out how much the currency pair is changing in MT4 also. To clarify, this indicator measures the rate at which the price changes from the current period to the previous n period of the Tradingview chart. Hence, ROC measures the rate of change between the two-period prices. However, when expressed as a percentage, the rate of change strategy helps Forex traders determine acceleration, overbought and oversold zones, and trend direction. Note that any financial asset can theoretically advance indefinitely, but the maximum decline is towards zero. This indicates that conversely to the indefinite positive ROC values, the ROC negative values have a limitation.

## Rate of change indicator

**What is the Rate of Change indicator?**

ROC indicator compares the current price with the previous price of n periods ago, with n referring to the number of the period. To explain, it is expressed as a percentage. In fact, the previous price is subtracted from the current price and then divided by the previous price. Besides, Forex traders commonly use it as a momentum tool. Also, ROC gets plotted against zero. When the ROC moves into the positive territory, the price changes are on the upside. When it moves into the negative territory, the price changes are on the downside.

**How to Calculate the Price Rate of Change ?**

ROC gives insight into the link between the 2-period of closing prices. In a simple calculation, we will consider each period “12 days”. Hence, it assumes a period of 12 days back from the close or the open price, then, deducted from the current price.

The difference presents a percentage and is schemed as a ROC. It can be sometimes positive sometimes negative.

**Rate Of Change (ROC) = [(Current close price – Close price n terms ago) / (Close n terms ago)] * 100**

Thus, we can consider zero as a neutral line of reference. At this point, the current close price is equal to the period n price.

**How to use ROC indicator ?**

**Long term strategy example**

The ROC strategy is one of the best trading strategies for day traders. Nevertheless, it represents also an excellent system even for long-term investors. So, if we trade on the long-term timeframe, the change in the market belief will be observable with a retard. So, our analysis would also be delayed. What we need to do to avoid this, is to examine the tendency in different periods. There are 360 trading days per year in the forex market (unlike the stock market), which can be divided to:

- 180 trading days/6 months.
- 120 trading days/3 months.
- And, 30 trading days/month.

Logically, a trend reversal would first take place and be visible on the smaller timeframes. Then, it will slowly roll out to the bigger timeframes. If the 360-period Rate of change and the 180-period ROC are both positive, then the long-term trend is bullish. At the same time, you will notice that the shortest period of ROC 30 will present high volatility because of the natural ebb and flow of the market. We should choose two timeframes to confirm a shift in the price direction. Furthermore, when the 30-period ROC and 120-period ROC both become negative, we expect a shift downwards. We can also confirm a bearish trend, when also the long-term 360 and 180 periods ROC turn negative. For further explanation, here is an example :

We can see that both the ROC360 and the ROC180 are negative, almost equal to -7%. This confirms that the trend is bearish.

**Short term strategy example**

The basic short-term strategy to use for the ROC is very simple. Its interpretation is also easy:

- If the ROC is beyond the neutral line (zero line) and keeps heading upward, then it signals an up tendency. Thus, w detect a buy sign and initiate a long position.
- When the ROC declines and is still above the Zero Line, it shows that the pace of the downtrend is increasing.

In contrast:

- When the ROC is below the Zero Line and keeps declining lower, it shows us that the downtrend pace is increasing. We can take a short position in this case.
- When the ROC begins to rise and is still below the Zero Line, it means the downtrend speed is decreasing.

**Download ROC indicator for MT4**

The ROC is a rate of change indicator for MT4 that is not preinstalled on the MetaTrader 4 platform. For that, we need to add it manually. To do so, the first step is to download the ROC indicator for MT4. Secondly, we open MetaTrader 4, and we click the button on the top left that says “File”.

Secondly, we click on Open Data Folder. This window will appear :

In the last step, we simply open the folder called Indicators. And then, we copy the ROC indicator file into that MT4 folder. After that, we restart MetaTrader4 and we will find that the indicator is installed.

**Download ROC indicator for MT5**

ROC indicator for MT5 can inform Forex traders about the overbought and the oversold conditions of the market based on the rate of change. This can help traders anticipate trend reversals. As explained earlier, the normal rate of change values should be close to zero. And if the values move away from the zero line, it notifies us about high market momentum.

For instance, noticing a rising ROC level will signal an overbought area where there is a powerful buying pressure. Whereas, a falling ROC indicator will signal an oversold area where the selling pressure is dominating. However, detecting those areas in choppy markets or while trading using short timeframes can be very useful. Thus, in such conditions, we can set a 12-day ROC period in order to get better results when we use the MT5 ROC indicator.

**Download ROC indicator for Tradingview**

ROC indicator for Tradingview used as a divergence tool. This tool can signal an upcoming trend change. Divergence happens when the price of the asset moves in a direction opposite the direction of the ROC. For example, if the price increases over time, while the ROC keeps moving lower, we can expect a shift downwards. The same thing applies when the price moves downwards and the ROC indicator moves upwards on the Tradingview chart. This can be a bullish signal.

### Conclusion

When using the ROC indicator (rate of change) in MT5, we should keep in mind that it is better to think of it as a simple tool that can provide some relevant clues. However, it can be very helpful when it comes to examining price changes and analyzing tendencies. As a result, it is a useful MT4 technical analysis tool. In short, the ROC indicator is the rate of change MetaTrader indicator plotting the rate of price change between the current and previous closing price of periods in Tradingview also.

### Key takeaways

- If the ROC indicator is beyond the neutral line, then it falls below it, hence, it displays that the up tendency is slowing down.
- Some Forex traders also use it to identify extremes and forecast turning points.
- This indicator tells us how fast the price is moving compared to previous periods.
- ROC upper band is unlimited while the lower band is limited to -100.
- The ROC values rise and fall with the price.
- For long-term investing analyze the trend in multiple timeframes.