In this article we will take a look at the Exchange Rate Index in the Foreign exchange market. This index assesses the price changes on the foreign exchange market. Thus, we will focus on the calculation of the ROC indicator.
The ROC stands for “Rate Of Change indicator”, so it corresponds to the index of the exchange rate in the Foreign exchange market. The ROC indicator provides a comparison between the closing rate of the day and that of number days earlier. When prices tend to rise, the ROC indicator increases and when they tend to lower the ROC indicator also decrease. Thus, it reflects the magnitude of change in prices.
The ROC indicator of 10 days information on the levels of overbought and oversold. The market is more secure and the exchange rate is high. A rally is approach, meanwhile, indicated by a decrease in prices. When your transactions, it is particularly appropriate to carry out the control of the ROC index, and to estimate when the potential market changes.
The index assesses the exchange rate increase in points or percentage during the day and compares it to the previous days. You can get similar data through the Momentum indicator, but as a ratio.
When taking a look at the ROC, the figures are reliably reversible. A change in expectations is caused by the resistance to decrease and increase and this creates a sinusoidal curve type.
We can calculate the index of the exchange rate in the Foreign exchange market from different periods. It is the volatile set daily chart measured on a period of 200 days or more. Most commonly, observation periods of 12 and 25 days for the short-and medium term are used. This topic was addressed by Fred Hitschler and Gerard Call in their publication, Stock Market Trading Systems.
Levels of overbought and oversold courses are very easy to identify with the ROC to 12 days. The finding of an overbought currency we do when the ROC indicator is high and the oversold in the opposite situation, when the ROC is low. We would like to specify that it is not always wise to wait for the turnaround, as it often happens that the trend of these figures is maintained for some time.
We hope you have well understood the use and importance of the indicator and that you will take advantage of this knowledge in your future trades.