Smoothed Rate of Change Using Exponential Moving Averages

Summary

Smoothed Rate of Change adapts the standard Rate of Change momentum indicator by applying it to an exponential moving average rather than directly to closing prices. The calculation first forms an EMA, then compares its current value with the value from a specified number of periods earlier. Dividing that change by the earlier EMA and expressing it as a percentage produces an oscillator intended to indicate whether momentum is strengthening or weakening. The document gives default EMA and comparison periods of 13 and 21.

Its signal interpretation centers on the zero line: in an uptrend, a move below the center followed by a turn upward is presented as a possible buy signal; in a downtrend, a move above it followed by a turn down is presented as a possible sell signal. The EMA is intended to reduce the erratic behavior of price-based RoC, but the document supplies no tests, performance evidence, or guidance on parameter selection. These signals are described as an indicator technique, not as a validated standalone trading system.

Key ideas

• The indicator calculates Rate of Change from an EMA instead of directly from closing prices.
• It compares the current EMA with its value a chosen number of periods earlier.
• The percentage change is plotted as a momentum oscillator around a center line.
• The described signals depend on a center-line reversal interpreted in the context of the prevailing trend.
• The document offers no backtest evidence for the suggested signals.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.