|By Nathan Young|
October 23, 2017
Rate of change or the price rate of change is another technical indicator that is used to help find momentum and the direction of the market. Whether you are a swing trader or a long term investor, it is always a solid idea to know where the market is at. Typically plotted on the bottoms of the chart, it is calculated by taking the most recent closing price, subtracting the closing price for however many periods ago. Then, dividing that bn the closing price however many years ago, multiplied by 100.
How to read this is the indicator will plot positive to negative on a chart and fluctuate accordingly. One way to read the indicator is if you see price trending upward but the rate of change is sloping downward, this could be signaling a potential trend shift. Same can be said about the reverse. Understanding where the market is at allows you to enter and exit and better times than if you were just going in with a two second glance.
Some other tools to use with the rate of change are standard deviation levels. Using these levels can help give you a higher probability of being correct, if the market follows the rules of standard deviation. Also, using it in combination with the rate of change, you can begin zeroing in on an entry or exit point. This is a tool trader’s use over all time frames but you can find what works best for you. MacroAxis is populated with many other tools to help you become a more knowledgeable trader.