# Rate of Change Indices Technical Analysis and Rate of Change Indices Trading Signals

Rate of Change indicator is used to calculate how much stock indexes price has changed within a specified number of stock indexes price periods. It calculates the difference between the current candlestick and the stock indexes price of a selected number of previous candlesticks.

The difference can be calculated using Points or Percentages. Rate of Change moves in an oscillation manner, where it oscillates above and below a zero center-line level. Levels above zero are bullish while those below zero center-line level are bearish.

The greater the changes are in the indices prices the greater the changes in the ROC.

## Indices Technical Analysis and Generating Indices Trading Signals

Rate of Change indicator can be used to generate stock indexes signals using a number of methods, the most common ones are:

## Crossover Signals

Bullish Signal - buy stock indices signal is generated when the ROC crosses above the zero center line

Bearish Signal - sell stock indices signal is generated when the Rate of Change crosses below the zero center line.

## Overbought/Oversold Levels:

Overbought - The higher the reading the more overbought indices is. Values that are above the overbought level imply that a indices price is overbought and there is a pending stock indexes price correction

Oversold - The lower the reading the more oversold indices is. Values below the oversold level imply that indices is oversold and there is a pending stock indexes price rally.

However, during strong trending markets the stock indexes price will remain in the Overbought/Oversold Levels for a long time, and rather than the stock indexes price reversing the stock indexes price indices trend will continue for quite some time. It is therefore best to use the crossover signals as the official buy and sell stock indices signals.

## Indices Trend Line Breaks

Indices Trend lines can be drawn on ROC indicator just the same way indices trend lines can be drawn on stock indexes price charts. Because The Rate of Change is a leading indicator, the indices trend lines on the indicator will be broken before those on the stock indexes price charts. A indices trend line break on the Rate of Change is an indication of a bullish or bearish reversal indices signal.

**Bearish reversal**- Rate of Change readings breaking above a downward indices trend line warns of a likely bullish reversal.**Bearish reversal**- Rate of Change readings breaking below an upward indices trend line warns of a likely bearish reversal.

## Divergence Indices Trading

Rate of Change can be used to trade divergences, and to identify potential indices trend reversal stock indexes trading signals. There are four types of divergences; classic bullish, classic bearish, hidden bullish and hidden bearish divergence.