Rate of change indicator

The rate of change indicator is a momentum measure that shows the percentage change in a stock's price between the current period and its price a set number of periods earlier. It is one of the simplest momentum tools in technical analysis, designed to show not just whether a stock is rising or falling but how fast that move is happening.

The calculation compares the current closing price to the closing price from a chosen number of periods back, commonly 9, 12, or 25 days, and expresses the difference as a percentage. A positive reading means the stock is higher than it was at the start of the lookback window, and a negative reading means it is lower, with the size of the number reflecting the speed of the move rather than just its direction.

The formula is:

Traders use the rate of change indicator to spot accelerating or decelerating momentum, a rising reading suggests upward momentum is building, while a falling reading, even if the stock is still going up in absolute terms, can suggest the advance is losing steam. It is also used to spot divergence, where price makes a new high or low but the rate of change fails to confirm it, a pattern that can warn of a weakening trend before it shows up clearly on the price chart itself. Because it is unbounded, unlike an oscillator such as the relative strength index that is capped between 0 and 100, it is generally read in relative terms against its own recent history rather than against fixed overbought or oversold thresholds.