Volume Rate of Change

The Volume Rate of Change is the indicator that shows whether or not a volume trend is developing in either an up or down direction.

Study Type: Stand-alone

Description

You may be familiar with price rate of change, which shows an investor the rate of change measured by the issue's closing price. To calculate you need to divide the volume change over the last n-periods (days, weeks or months) by the volume n-periods ago. The answer is a percentage change of the volume over the last n-periods. Now, what does this mean? If the volume today is higher than n-days (or weeks or months) ago, the rate of change will be a plus number. If volume is lower, the ROC will be minus number. This allows us to look at the speed at which the volume is changing.

One of the problems that analysts have with the V-ROC is determining the period of time to measure the rate of change. A shorter period of say 10 to 15 days would show us the peaks created by a sudden change, and, for the most part, trendlines could be drawn. For a more realistic look I would suggest using a 25- to 30-day period; this length of time makes the chart look more rounded and smooth. Shorter periods tend to produce a chart that is more jagged and difficult to analyze.

Parameters

• Period: 14 - the number of bars, or period, used to calculate the study.