Rate of Change Indicator

Description:

The Rate of Change indicator calculates the market's change from price of current bar to price of x bars ago. The difference is returned as a percentage.

Conventional Analysis:

When the Rate of Change indicator is above zero, it indicates that the market is overbought. When the indicator is below zero, it indicates that the market is oversold.

Additional Analysis:

The Rate of Change indicator tests the market to see if it is in a state known as Bullish Key Reversal or Bearish Key Reversal. A Bullish Key Reversal occurs when the low of the current bar is less than the lowest low over the preceding nine bars and the close of the current bar is yesterday's close. A Bearish Key Reversal occurs when the high of the current bar is greater than the highest high over the preceding nine bars. When there is a Bullish Key Reversal, the potential exists for an upward move. When there is a Bearish Key Reversal, the potential exists for a downward move.

Additional References:

Kaufman, Perry J. The Commodity Trading Systems & Methods. John Wiley & Sons, Inc. New York. 1978.