A generic term used to describe the rate at which price changes as well the name of a specific calculation. Rate of change (ROC) is simply an alternate version of this basic indicator. The implications and interpretations of these two studies are identical.
Momentum/ROC are similar to oscillators, such as the relative strength index (RSI) and stochastics, in that they are generally intended to highlight shorter-term price momentum extremes (overbought or oversold points).
The most common calculation for momentum is simply today’s price (typically the closing price) minus the price n days ago:
(Ptoday - Pn days ago).
The most basic ROC formula is today’s price divided by the price n days ago:
(Ptoday / Pn days ago).
Alternate calculations for rate of change are 100*(Ptoday/Pn days ago) or (Ptoday - Pn days ago)/Pn days ago. Except for scaling, the resulting momentum and ROC indicators are the same; momentum simply expresses price change as the difference between two prices, while ROC expresses price change as a percentage or ratio.
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