The Price Rate of Change is a non-banded oscillator that watches the price when it grows, falls, or keeps the same speed. The PROC can be positive when the ROC is strong, the prices tend to grow, and negative when the ROC is weak, and the prices tend to fall. Today we are going to talk about the best Rate of Change strategies.
RoC and the Moving Average
At first, we need to get a precise signal. This can be done by using 5 and 30 MA and ROC. Using these together, you will get the best time to enter any trade.
Read more on the topic: Rate of Change (ROC) for Forex Trading (Noah Brickwell).
Have a look at the picture above. As you can see, when the 5 DMA is over 30 DMA or when the ROC gets higher than the zero lines, the best option is to go for a long trade. Here are some details about this strategy.
- In “Case 1”, the trader had taken a long position at 410 when he saw that the ROC had a higher level than the zero lines. He decided to quit at 440 after the ROC fell below the zero line. Overall, he had made a profit of 30 points.
- In “Case 2”, the trader noticed a signal to buy at the position of 450. As you can see, the ROC is noticeably higher than the zero lines, and the 5 MA is over the 30 MA. By the level of 560, the ROC fell below the zero lines, and the trader exited.
- In “Case 3”, at the level of 550, the ROC was under the zero line and the 5 MA was under the 30 MA. This created a signal to sell. At the level of 440, the position got separated again.
Although such a trading style takes some time, it is capable of bringing decent profits.
This Rate of Change strategy is quite risky. If you do everything properly, it turns out being really rewarding. Breakouts appear when a price breaks a support or resistance level. This is when you should trade.
Read more on the topic: How to use price rate of change indicator?
The ROC indicator is the best option to measure this momentum. A strong momentum indicates that a price is going to keep a certain direction for some time. You can use this knowledge to plan your trades in a better way.
In our situation, we have used a 5-period ROC. There can be other periods used. Experiment and find the best option for yourself. The 5-period ROC is put on a daily chart and shows all the information on the momentum in the price for the previous 5 days. Pay attention that the zero lines is completely removed. Instead, +1 and -1 levels are plotted. If the ROC gets over the +1, this means that the momentum is strongest. Getting below the -1 will mean that the momentum is weakest. According to the currency pairs traded, in this ROC strategy, the values can be changed. For instance, instead of using +/-1, you can use +/-0.25.
Then follow these steps:
- Determine the range;
- Expect a breakout;
- Make profits.
The picture below shows a downside breakout. Proper position management will help you maximize the trade and ensure you with future profits.
We hope this Rate of Change strategies will assist you in your trading career. Use them wisely!