Volume Rate of Change Indicator and Forex Trading

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By: Terry Allen

The Volume Rate of Change Indicator (V-ROC) has no accredited inventor. The V-ROC is an oscillator that concentrates on volume instead of price otherwise its design is identical to the Rate of Change Indicator. Basically, the V-ROC monitors and displays the rate at which volume changes. Expertise consensus agrees that this is a useful parameter to monitor because price reversals are normally accompanied by sharp increases in trading volumes. As such, you can use this indicator to supply yourself with useful Forex information that is based on the close correlation between the movements of price and volume for currency pairs.

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You will find that the V-ROC is helpful in identifying new bear and bull price channels by detecting trends in volume. The V-ROC fluctuates about a zero line producing larger readings when volume expands and lower ones when it contracts. The displayed values of the V-ROC are calculated by dividing the volume change over a set period of time by its value at the start of the period. Consequently, if volume decreases over the selected time-period then a negative value will be generated whilst if it increases a positive one will be recorded. You can make the best use of the V-ROC to identify overbought, oversold, market bottoms, market tops and breakouts. This is because all these trading events are accompanied by rapid rate changes in volume. You are also advised to confirm the findings of the V-ROC by using other suitable indicators as well as studying its recent historical data.

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The major problem you will have using the V-ROC is deciding the best time-period to deploy in order to measure the rate of volume change. If you select a period that is too small, then you could find that the V-ROC is too sensitive. In contrast, if you choose too long a period, then the V-ROC may not respond quickly enough to major price events such as reversals. After extensive research and from experience, most experts advise that the best time-period to use is the 25 to 30 day one. You will find that this selection also has the benefit of producing charts that can be readily analyzed.

You can use the readings produced by the V-ROC to advise of the following events. If price is rising, but the V-ROC values are fluctuating about its zero level, then this is an indication that a reversal could be imminent. This is because volumes are not showing that the current price action is sustainable. You can also deduce the same conclusion if the V-ROC maintains a steady reading or begins to retract.

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