The difference between the moving averages represents the rate of change. As its name implies, ROC measures the percentage price change over a given time period. The bigger the difference between the current price and the price 20 days ago, the higher the value of the ROC Oscillator. As with MACD, ROC is not bound by upper or lower limits. This is typical of most centered oscillators and can make it difficult to spot overbought and oversold conditions.
Banded oscillators offer a better alternative to gauge extreme price levels.
Banded Oscillators Banded oscillators fluctuate above and below two bands that signify extreme price levels. The lower band represents oversold readings and the upper band represents overbought readings. These set bands are based on the oscillator and change little from security to security, allowing the users to easily identify overbought and oversold conditions. A reading greater than 70 would be considered overbought and a reading below 30 would be considered oversold. For the Stochastic Oscillator, a reading above 80 is overbought and a reading below 20 oversold.