2 Period Rate of Change
How Linda Raschke and Stan Druckenmiller Used ROC to Time Trades
Heard of the ‘Rate of Change’ indicator?
Linda Raschke likes to use a 2-period ROC on her charts… here’s a video where she explains it (Starts at 29:23.)
And Stanley Druckenmiller once admitted (ha, ‘admitted’ like it’s a sin!) that charts help his trading decisions.
But dig deeper, and he mentions something odd: “Second derivative rate of change” 
RATE OF CHANGE
Druckenmiller said this:
“But I was introduced to all the top chart systems throughout 20 years, and we ended up buying a system, and bring it internally. And because it used second derivative rate of change, these things will often bottom a year to a year and a half before the fundamentals,”
Wait… Second derivative of rate of change?
Now I’m no mathematician, but I think that means…the acceleration of the rate of change.
A rate of change of the erm rate of change.
We know that Druckenmiller was looking for big macro themes, multi-year plays, and it seems that the 2nd derivative of ROC was his ‘tell’ before the crowd noticed.
So, how much value does that have for us active traders? Probably not so much…
Linda Raschke, however, looks to capture the next predictable swing… not a multi-week hold, but the next one to three-day move. (Far more useful for traders, swing or day.)
And she uses a 2-day ROC to help find that swing.
Then, a trendline break on the ROC indicator to guide entries. (See above)
Just catching the rhythm of the market:
Trend → pause → breakout → swing.
So, what’s my point?
Well, if two great traders like to use some form of rate of change, it might just be worth exploring how it could fit into your trading model.
I mean, it does make sense, right?
The markets do move in 2-3 day rhythms.
We see it all the time… trend one day, then consolidate the next.
Inside day then breakout.
Maybe Rate of Change gives us a clearer read on that cycle?
Have a play with it, see what you think.