What is Price Rate of Change?
The price rate of change is simply the percentage change in a security's price between two periods.
How Does Price Rate of Change Work?
The formula for the price rate of change is:
Price Rate of Change = (Price at Time B - Price at Time A) / Price at Time A
For example, let's say Company XYZ's share price was $10 yesterday and was $5 a week ago. Using the formula above, we can calculate that the price rate of change is:
Price Rate of Change = ($10-$5) / $5 = 100%
Why Does Price Rate of Change Matter?
The price rate of change can be used to measure not just the direction of a trend but the momentum or speed of a stock price trend. For instance, values above zero indicate upward momentum (i.e., an acceleration in buying); values below zero indicate falling momentum (i.e., an acceleration in selling).
Though this information is valuable in its own right, analysts are particularly interested when the price of the security goes in the opposite direction of the price rate of change. For example, when the price of the asset is decreasing but the rate of change in increasing, a large increase in the stock price may occur, which in turn might indicate a hidden buying opportunity.
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.
Read This Next
The covered call strategy is a reliable way to generate income in your investment account on a monthly basis. Basically, this investment approach captures income by selling call...Read More →