Price Rate of Change Indicator for MT4

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Price Rate of Change Indicator for MT4

Introduction to the Price Rate of Change Indicator

Momentum changes and its potential reversals can be identified based on the percentage change of price when compared to prior price points.

The Price Rate of Change indicator is an indicator which does just that. It identifies momentum shifts based on the percentage change of price.

What is the Price Rate of Change Indicator?

The Price Rate of Change (ROC) indicator is a momentum-based trend following technical indicator which presents momentum as an oscillator.

This indicator measures the percentage change between the current closing price and the closing price coming from a prior period.

How the Price Rate of Change Indicator Works?

The Price Rate of Change indicator computes for the difference between the current closing price and the closing price n periods before the current period. It then divides the resulting difference with the closing price n periods before the current period. The result is then multiplied by 100. This becomes the percentage change of price from a prior period.

The result is then plotted as an unbounded line that oscillates freely around its midpoint, zero.

Price Rate of Change Indicator for MT4

The number of periods (n) is the main variable that could be manipulated with this indicator. This can be modified under the Inputs tab of the indicator settings. It also has the “Use Percent” option, which modifies the value of the ROC.

How the Price Rate of Change Indicator Works

How to use the Price Rate of Change Indicator for MT4

The ROC indicator indicates trend direction or bias based on whether the ROC line is positive or negative. A positive ROC line indicates a bullish momentum bias, while a negative ROC line indicates a bearish momentum bias. As such, an ROC line crossing the midpoint, zero, is indicative of a potential momentum reversal.

As an oscillator, the ROC can also be used as a basis for divergences. However, it is best traded in confluence with the general direction of the trend.

Buy Trade Setup

When to Enter?

Identify an uptrend market based on price action. Allow the ROC line to drop below zero on the pullbacks. Open a buy order as soon as the ROC line crosses above zero while price action shows signs of a bullish momentum. Set the stop loss on the support below the entry candle.

When to Exit?

Close the trade as soon as price action shows signs of a weakening bullish momentum or a probable reversal.

How to use the Price Rate of Change Indicator for MT4 - Buy Trade

Sell Trade Setup

When to Enter?

Identify a downtrend market based on price action. Allow the ROC line to breach above zero on the pullbacks. Open a sell order as soon as the ROC line crosses below zero while price action shows signs of a bearish momentum. Set the stop loss on the resistance above the entry candle.

When to Exit?

Close the trade as soon as price action shows signs of a weakening bearish momentum or a probable reversal.

How to use the Price Rate of Change Indicator for MT4 - Sell Trade

Conclusion

This indicator can produce decent trade setups based on momentum reversals. However, the signals this indicator produce can sometimes be very erratic and is prone to false signals.

It is best to use the signals produced by the ROC indicator in confluence with other signals. This could be from divergences, trend continuation patterns, or breaks from a minor support or resistance line.

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Price Rate of Change Indicator for MT4

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