To measure the rate of change, a ratio is constructed of the most recent closing price to a price a certain number of days in the past. To construct a 10 day rate of change oscillator, the latest closing price is divided by the close 10 days ago. The formula is as follows:
Rate of change = 100 (V/Vx)
where V is the latest close and Vx is the closing price x days ago.
In this case, the 100 line becomes the midpoint line. If the latest price is higher than the price 10 days ago (prices are rising), the resulting rate of change value will be above 100. If the last close is below 10 days ago, the ratio would be below 100. (Charting software sometimes uses variations of the pre­ceding formulas for momentum and rate of change. While the construction techniques may vary, the interpretation remains the same.)