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Encyclopedia > Rate of change (technical analysis)

Momentum and rate of change (ROC) are simple technical analysis indicators showing the difference between today's closing price and the close N days ago. Momentum is simply the difference, Technical analysis (or chartism) is the study of price movement and trend in markets in order to forecast future prices. ...

momentum = close_{today} - close_{N,days,ago}

Rate of change scales by the old close, so as to represent the increase as a fraction,

rate,of,change = {close_{today} - close_{N,days,ago} over close_{N,days,ago} }

"Momentum" in general refers to prices continuing to trend. The momentum and ROC indicators show that by remaining positive while an uptrend is sustained, or negative while a downtrend is sustained.


A crossing up through zero may be used as a signal to buy, or a crossing down through zero as a signal to sell. How high (or how low when negative) the indicators get shows how strong the trend is.


The way momentum shows an absolute change means it shows for instance a $3 rise over 20 days, whereas ROC might show that as 0.25 for a 25% rise over the same period. One can choose between looking at a move in dollar terms or proportional terms. The zero crossings are the same in each, of course, but the highs or lows showing strength are on the respective different bases.


SMA

Momentum is the change in an N-day simple moving average (SMA) between yesterday and today, with a scale factor N, ie. A moving average, in finance and especially in technical analysis, is one of a family of similar statistical techniques used to analyze time series data. ...

This is the slope or steepness of the SMA line, like a derivative. This relationship is not much discussed generally, but it's of interest in understanding the signals from the indicator. In mathematics, the derivative is defined to be the instantaneous rate of change of a function. ...


When momentum crosses up through zero it corresponds to a trough in the SMA, and when it crosses down through zero it's a peak. How high (or low) momentum gets represents how steeply the SMA is rising (or falling).


The TRIX indicator is similarly based on changes in a moving average (a triple exponential in that case). Trix (or TRIX) is a technical analysis oscillator developed in the 1980s by Jack Hutson, editor of Technical Analysis of Stocks and Commodities magazine. ...


References

  • Momentum page at ChartFilter.com
  • Rate of Change and Momentum page at StockCharts.com

  Results from FactBites:
 
*** Empirical Production Analysis (2071 words)
Technical change is then defined as a change in the technology index t which affects the relationship between inputs x and output y.
Equation (3) illustrates that the rate of technical change is the rate of output change that cannot be explained by the change in inputs between the two periods.
Equation (8) indicates that the rate of technical change is simply the logarithm of the TFP index (or equivalently that the TFP index is the exponential of the rate of technical change).
Technical analysis - Wikipedia, the free encyclopedia (2283 words)
Technical analysis refers to methods that aim to forecast prices of securities in financial markets using charts or quantitative techniques.
Technical analysis is less concerned with why a price is moving (poor earnings, difficult business environment, poor management, etc. or other fundamentals) than it is on the fact that the price is moving in a particular direction.
Technical analysis holds that because every possible bit of information is included in the price of a security, it is not necessary to explicitly analyze the fundamental, economic, political, etc. factors that might influence that price.
  More results at FactBites »


 

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