– Unlike most oscillators, Price Rate of Change has no limit levels. This indicator feature is related to the way its calculated.
ROC is calculated based on fluctuations in the asset price. The price changes constantly and it can go up or down by any number of points. So the indicator can also go up or down without restrictions.
– ROC is an independent oscillator. However, it is recommended to combine it with other tools to confirm the signals. This need is also explained by the ROC calculation method.
The fact is that the indicator attributes the same weight to all changes in the asset price, although the latest changes are more important. Because of this, the oscillator may contain outdated information and give false signals.
Additional technical analysis tools will help filter them out. For example, you can use SMA, RSI or Bollinger Bands.
– The oscillator does not have fixed overbought and oversold levels, but they can be built separately for each asset. They help more accurately to determine the trend reversal points and filter out false signals about the trend change.
Levels are drawn on the indicator chart. The level of overbought is based on the highs of the price which it turned down. The oversold level is based on the lows of the price which it turned up.
Important: the oscillator should be in overbought and oversold areas no more than 10% of the time.
