Momentum and ROC
How fast is the price rising? Momentum and rate of change measure "speed", not just direction.
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Text version · Oscillators & Momentum, lesson 5: “Momentum and ROC”
How fast is the price rising? Momentum and rate of change measure "speed", not just direction.
Measures speed, not just direction
momentum = today's close − the close N bars ago; ROC divides that by the price N bars ago to make it a percentage. Above the zero line means higher than N bars ago.
Still rising, but slower and slower
Price keeps making new highs, but each ROC wave is lower: the rally is slowing down. That's an early divergence, a cue to be more careful, not to flip your position right away.
Zero line: higher or lower than N bars ago
Momentum above the zero line means today is higher than N bars ago; crossing zero means price is back to where it was N bars ago. The smaller the lookback N, the more sensitive and short-term it is; the bigger N, the smoother, reflecting momentum over a longer stretch.
Key takeaways
- Momentum = today's close − the close N days ago; ROC = momentum ÷ the close N days ago × 100%.
- Above zero: higher than N days ago. Below zero: lower than N days ago.
- If price is still rising but each ROC peak is lower than the last, the rally is slowing down. That's a warning, not a reversal signal.
Try it yourself
You can do these exercises in this lesson's interactive simulation:
- Click "Example: 110 vs. 100": what are momentum and ROC?
- Press ▶ to play and watch the amber "slowing" stretches: price is rising, yet the speedometer needle is swinging back.
- Find price's highest point (around bar 108): is ROC higher or lower there than at the high near bar 60?
- Change N to 20: how do the position and length of the slowing stretches change?
Quiz and explanations
- 1. Today's close is 110 and the close 10 days ago was 100. What's ROC(10)?
- Answer: 10%.(110 − 100) ÷ 100 = 10%.
- 2. Price makes a new high, but the ROC peak is lower than last time. What does that mean?
- Answer: Upward momentum is fading.That's an early form of momentum divergence.
- 3. ROC drops from +8% to +2% but stays above zero. What does that say about price?
- Answer: It's still higher than N days ago, but rising more slowly.Above zero means still higher than N days ago; a smaller reading only means the pace has slowed.
Terms in this lesson
- lookback period (Lookback Period): How many recent candles an indicator uses; shorter is more sensitive but noisier, longer is smoother but slower.
- momentum (Momentum): Today's price minus the price N days ago, measuring how fast price is changing.
- ROC: The percentage change of today's price versus N days ago.