Rate of Change

Rate of change is a momentum indicator that measures how far the share price is from the equilibrium level. Rate of change is calculated as the ratio of share prices for two occasions in time, the share price today divided by the the share price ten days ago for example.

With the rate of change indicator one can get an idea of how overbought or oversold a stock is. The rate of change indicator can be used to generate buy signals and sell signals. To use the rate of change to generate buy and sell signals you have to determine the levels for the rate of change indicator where these signals should be triggered.