Overview
The Price Rate-of-Change ("ROC") indicator displays the difference between the current price and the price x-time periods ago.  The difference can be displayed in either points or as a percentage.  The Momentum indicator displays the same information, but expresses it as a ratio.

Interpretation
It is a well recognized phenomenon that security prices surge ahead and retract in a cyclical wave-like motion.  This cyclical action is the result of the changing expectations as bulls and bears struggle to control prices.

The ROC displays the wave-like motion in an oscillator format by measuring the amount that prices have changed over a given time period.  As prices increase, the ROC rises; as prices fall, the ROC falls.  The greater the change in prices, the greater the change in the ROC.

The time period used to calculate the ROC may range from 1-day (which results in a volatile chart showing the daily price change) to 200-days (or longer).  The most popular time periods are the 12- and 25-day ROC for short to intermediate-term trading.  These time periods were popularized by Gerald Appel and Fred Hitschler in their book, Stock Market Trading Systems.

The 12-day ROC is an excellent short- to intermediate-term overbought/oversold indicator.  The higher the ROC, the more overbought the security; the lower the ROC, the more likely a rally.  However, as with all overbought/oversold indicators, it is prudent to wait for the market to begin to correct (i.e., turn up or down) before placing your trade.  A market that appears overbought may remain overbought for some time.  In fact, extremely overbought/oversold readings usually imply a continuation of the current trend.

The 12-day ROC tends to be very cyclical, oscillating back and forth in a fairly regular cycle.  Often, price changes can be anticipated by studying the previous cycles of the ROC and relating the previous cycles to the current market.