What is Rate of Change (ROC) and How To Compute It?

November 4, 2009

Forex article

Rate of Change or ROC is a technical indicator that measures the changes between the percentage compared to the most recent price and the price "n" periods in the past. It is also said that it monitors the momentum of the market. It estimates the market’s rate of change comparative to the previous trading intervals. In the highest level, the indicator might say a market is quite overbought. Valleys or troughs also points out an oversold market situation.

It can also stand alone as an essential indicator used by many technicians interested in market momentum. It has a horizontal median called equilibrium. It is this median that tells us everything we need to know about this type of rate. A few technicians in the market often use a very simple approach for the Rate of Change learning. It is concern with buy and sells signals based upon the zero line or the midpoint. This presumes oversold or overbought market conditions which pave the way of crossover. You may sell when the rate of change line go across from above to below on the other hand you may buy when the indicator intersect from below to above.

It trades with price changing amount during the exact time and match to it as an oscillator that shows the cyclical movement. It goes up along with the prices up-trending and it decreases when the prices go down. If prices go high, changes gives the according significant rate changing.

Mostly, it is best to use this indicator as an antecedent to change in market direction. One good thing to do is to establish extreme zones for the study, much like the Relative Strength Index or Stochastic. However, a good technical analyst must know how to tolerate the study in extreme bull and bear markets. It can generate many sham signals under those market conditions. In addition, the indicator is parallel to an oscillator when it comes to the market accelerating or decelerating.

To compute it, here’s a good example:

Period (10) - the number of bars, or interval, used to calculate the study using the value you specify, it may be computed as the change from the current price relative to the price from the number of specified intervals prior to the current price.

The general formula is as follows:

ROCt = (Pricet / Pricen) * 10000

ROCt is the rate value for the current period. Pricet is the current price. Pricen is the price you specify for the nth interval (open, high, low, close, midpoint or average).

Take the example below which use current price of 7485 and a 7440 price n intervals ago:

ROC = (7485 / 7440) * 10000 = 1.006 * 10000 = 10006

There is a tendency to loss in futures trading. Past results on the other hand are not analytical of future results.

It may also be calculated by using the following formula:

(Closing Price Today - Closing Price "n" Periods Ago) / Closing Price "n" Periods Ago.

Posted by Haris Mala.

 

Forex Scam

November 4, 2009

Not beating the market

The foreign exchange market is a zero sum game in which there are many experienced well-capitalized professional traders (e.g. working for banks) who can devote their attention full time to trading. An inexperienced retail trader will have a significant information disadvantage compared to these traders.

Although it is possible for a few experts to successfully arbitrage the market for an unusually large return, this does not mean that a larger number could earn the same returns even given the same tools, techniques and data sources. This is because the arbitrages are essentially drawn from a pool of finite size; although information about how to capture arbitrages is a nonrival good, the arbritrages themselves are a rival good. (To draw an analogy, the total amount of buried treasure on an island is the same, regardless of how many treasure hunters have bought copies of the treasure map.)

Retail traders are - almost by definition - undercapitalized. Thus they are subject to the problem of gambler's ruin. In a fair game (one with no information advantages) between two players that continues until one trader goes bankrupt, the player with the lower amount of capital has a higher probability of going bankrupt first. Since the retail speculator is effectively playing against the market as a whole - which has nearly infinite capital - he will almost certainly go bankrupt.

The retail trader always pays the bid/ask spread which makes his odds of winning less than those of a fair game. Additional costs may include margin interest, or if a spot position is kept open for more than one day the trade may be "resettled" each day, each time costing the full bid/ask spread.

According to the Wall Street Journal (Currency Markets Draw Speculation, Fraud July 26, 2005) "Even people running the trading shops warn clients against trying to time the market. 'If 15% of day traders are profitable,' says Drew Niv, chief executive of FXCM, 'I'd be surprised.' "

Paul Belogour, the Managing Director of a Boston based retail forex trader, was quoted by the Financial Times as saying, "Trading foreign exchange is an excellent way for investors to find out how tough the markets really are. But I say to customers: if this is money you have worked hard for – that you cannot afford to lose – never, never invest in foreign exchange."

Posted by Haris Mala.

 
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