BAJAJ FINSERV DIRECT LIMITED

Stocks Insights

Rate of Change (ROC): Definition, Formula & Importance

Nupur Wankhede Posted on October 04, 2025

What Is Rate of Change (ROC)?

The Rate of Change (ROC) is a momentum indicator used in technical analysis. It calculates the percentage change in price over a specific period.

ROC helps traders understand how quickly price is moving. A rising ROC shows strong upward momentum. A falling ROC signals weakening or negative momentum.

In Indian markets, ROC is used across stocks, indices, and derivatives. It’s available on platforms like Zerodha, Chartink, and TradingView.

Understanding the meaning of Rate of Change helps in analyzing momentum shifts.

How to Find the Rate of Change

The ROC formula is:

ROC = [(Current Price – Price n periods ago) / Price n periods ago] × 100

Variables:

Current Price: Latest closing price
Price n periods ago: Closing price from n days ago
n: Lookback period (e.g., 14, 21, 50)

Example:
If today’s price is ₹120 and 14 days ago it was ₹100:
ROC = [(120 – 100) / 100] × 100 = 20%

This means the price increased by 20% over 14 days.
The rate of change indicator helps traders gauge momentum and price acceleration.

How ROC Works in Momentum Analysis

ROC measures the speed of price change and is commonly observed for trend strength or reversals.

Interpretations:

Positive ROC: Price is rising, momentum is strong
Negative ROC: Price is falling, momentum is weak
ROC near zero: Market is consolidating
Sharp ROC swings: Volatile conditions

In Indian equities, ROC is observed by some traders to study breakouts and trend changes. ROC is sometimes viewed alongside RSI or MACD to add context to momentum analysis.

Choosing the Right Lookback Period

Short periods (7–14 days):

More sensitive
More noise
Useful in intraday or short-term trades

Long periods (36–200 days):

Smoother signals
Slower reactions
Suited for positional or long-term trades

Selection depends on volatility and strategy. In derivatives and rate-based setups, shorter periods are commonly used.

Applications of ROC in Trading

Use cases:

Detecting trend strength
Spotting overbought/oversold zones
Identifying divergence signals

Example:
Nifty shows rising price but falling ROC → bearish divergence.
This may suggest a potential reversal.

ROC can be applied to any Indian stocks such as Reliance, Infosys, HDFC etc. It is available on platforms like Chartink and TradingView. Some traders combine ROC with support and resistance to interpret signals more clearly. ROC is also observed in options trading to study momentum shifts.

Limitations of ROC Indicator

No fixed range like RSI
Can generate false signals in volatile markets
Sensitivity varies with lookback period
May lag during sideways markets
Often reviewed with other indicators

ROC signals are usually validated with volume or trend analysis.

Conclusion

The Rate of Change (ROC) is a momentum indicator that reflects the speed at which prices are moving over a selected period. It is often used to observe potential trend strength, reversals, or divergence patterns. While ROC can offer insights into price momentum, it is typically reviewed alongside other indicators or price levels for broader context. Since it may produce signals during volatile phases, relying solely on ROC without additional confirmation may limit decision-making clarity.

Disclaimer

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.

FAQs

What is the ROC formula?

ROC = [(Current Price – Price n periods ago) / Price n periods ago] × 100

Is ROC bounded like RSI?

No, ROC is unbounded. It can go above or below 100 depending on price movement.

What is a ROC divergence?

It’s when price moves up but ROC falls, or vice versa—signals a possible reversal.

Can ROC generate false signals?

Yes, especially in volatile or sideways markets. Always confirm with other indicators.

Should ROC be used alone?

ROC is typically observed alongside indicators like RSI, MACD, or volume to provide additional context.

Why does ROC lack a standard overbought/oversold range?

Because it’s unbounded and varies with asset volatility. It’s not range-restricted like RSI.

Hi! I’m Nupur Wankhede

BSE Insitute Alumni

With a Postgraduate degree in Global Financial Markets from the Bombay Stock Exchange Institute, Nupur has over 8 years of experience in the financial markets, specializing in investments, stock market operations, and project management. She has contributed to process improvements, cross-functional initiatives & content development across investment products. She bridges investment strategy with execution, blending content insight, operational efficiency, and collaborative execution to deliver impactful outcomes.

Read More

Most Viewed

Stocks Insights How Interest Rates Affect Stock Market Movements

5 Min Read | Posted on 04 Oct

Stocks Insights Key Investment Stock Market Strategies To Learn Before Trading

6 Min Read | Posted on 04 Oct

Stocks Insights Denta Water Share Price- Q4 FY’25 Results

1 Min Read | Posted on 04 Oct

Stocks Insights Pros and Cons of Investing in Mid-Cap Stocks

4 Min Read | Posted on 04 Oct

Home

Steal Deals

CIBIL Score

Accounts

Explore