Trading the cryptocurrency market using Rate of change indicator

Trading the cryptocurrency market using Rate of change indicator

By quintomudigo | Teacher forex school | 19 Dec 2019

Rate of change is a momentum oscillator indicator.

As a momentum oscillator indicator, Rate Of Change indicator was created by Fred G Schutzman with the main objective of helping traders to know the direction of the market as well as whether the market is in an overbought or oversold condition by measuring the percentage change in current price to that of n period price. As an oscillator indicator, Rate of change indicator has an oscillation at point 0.000. At below -3 that is an oversold market while at above 3 that is an overbought market.

Therefore, according to Fred G Schutzman, the values of Rate of change indicator is therefore calculated using the following formula;

Rate Of Change =( (current price/price of n periods ago)-1)*100

Furthermore, Rate of change can further be explained based on oversold and overbought condition as follows;

1. Rate of change cryptocurrency oversold

Since rate of change is an oscillator and has oscillation at point 0.000 and is based on oversold and overbought in the market,it therefore follows that when the ROC curve falls below -1 then that will be an indication that the market is moving downwards thus the traders should be trading downwards.When the ROC curve falls below -3,that will be an indication that the market has become oversold thus the cryptocurrency trader should purchase a given number of cryptocurrency with their USDT balance. The cryptocurrency trader can either place a market buy order which will instantly be executed or they can place a limit buy order which will be executed when the market reaches their buy limit order price.This is indicated as from the candlesticks chart below;

The above market is that of TRX in terms of USDT. From the market,two points are being indicated. There is point A and point B. Point A is the Rate of change indicator while point B represents the oversold point. At point B the rate of change indicator has fallen below -3 thus an indication of an oversold condition over there. This signals the cryptocurrency trader to purchase a given amount of TRX with their USDT balance. The cryptocurrency trader can either place a market buy order which will be processed immediately or they can place a limit buy order which will be processed when the market reaches their limit buy order. When their order is being executed the account of the cryptocurrency trader will start increasing in value.

2. Rate of change cryptocurrency overbought

Since rate of change is an oscillator and has oscillation at point 0.000 and is based on oversold and overbought in the market,it therefore follows that when the ROC curve rises above 1 then that will be an indication that the market is moving upward thus the  traders should be trading upward.When the ROC curve rises above 3,that will be an indication that the market has become overbought thus the cryptocurrency trader should sell a given amount of cryptocurrency which he had previously purchased and is currently holding. The cryptocurrency trader can either place a market sell order which will be processed immediately or they can place a limit sell order which will be processed when the price in the market reaches their limit sell order. This is indicated as from the chart below;

The above market is that of TRX in terms of USDT. From the market,two points are being indicated. There is point A and point B. Point A is the Rate of change indicator while point B represents the overbought point. At point B the rate of change indicator has risen above 3 thus an indication of an overbought condition over there. This signals the cryptocurrency trader to sell a given amount of TRX which he had previously purchased and is currently holding. The cryptocurrency trader can either place a market sell order which will be executed immediately or a limit sell order which will be executed when the market reaches their sell limit order price. When the order is being executed,the account of the cryptocurrency trader will increase in value in terms of USDT.

Cryptocurrency market is a highly volatile market. As a cryptocurrency trader,whenever you place a buy order,always make sure to apply risk management so that whenever your buy order goes against you, your account do not depreciate so much in value.

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