Momentum and Rate of Change (ROC)

These indicators are very much alike by the idea, method of calculation and the charts of the indicators.

ROC = P(i)/P(i-n) * 100

where
P(i) — price of the current bar;
P(i-n) — price n bars before.
Usually Close price is used as P.

The main signals for the Rate of Change:

• If the indicator is above 100, then the trend is bullish; if it is below, then the trend is bearish;
• Bullish divergence / bearish convergence - the main signal of the weakness of the prevailing trend.

MOM = P(i) — P(i-n);

Momentum signals:

• In most cases the indicator is leading in respect of the main price movement. Before the top of the trend the indicator reverses (whereas prices usually keep rising) and starts falling, only then the trend usually reverses downwards. Before the bottom the indicator slows its fall (whereas prices keep falling at a slower pace), reverses and starts rising, then the trend begins to reverse upwards;
• Bullish divergence / bearish convergence is the main signal of the weakness of the prevailing trend and possible reversal.