ROC Momentum Signals, Zero Crossovers, and Divergence
Summary
The document explains the Price Rate of Change (ROC) indicator, which compares the current closing price with the close a chosen number of days earlier. ROC’s direction and position relative to zero are used to describe whether price momentum is strengthening, flattening, or weakening. It notes that ROC may turn before price does and presents divergence as a possible sign of a developing market top or bottom.
The basic rules are to buy when ROC crosses above zero and sell when it crosses below zero. The extended interpretation treats a price high without a corresponding ROC high as bearish divergence, and a price low without a new ROC low as bullish divergence. The text suggests common lookback periods, but offers no test results, detailed execution rules, or risk management. These are technical-analysis heuristics, and the document does not establish their reliability across assets or market conditions.
Key ideas
- ROC compares the current close with the close from a parameterized number of days earlier.
- Rising positive ROC is interpreted as accelerating upward price momentum.
- A cross above zero is presented as a buy signal, while a cross below zero is a sell signal.
- Price and ROC divergence is described as a possible warning of a reversal.
- The document gives no performance testing or risk-management method.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.