Aroon indicator: Aroon Indicator Overview, How To Calculate, How To Interpret

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The Aroon indicators are a type of momentum oscillator that was developed in 1995 by Tushar Chande. It tells whether an asset is trending and how strong that trend is. He called his new oscillator “Aroon” because it means “Dawn’s Early Light” in the Sanskrit language. It can also be used to locate correction periods and to identify when the market is consolidating. Aroon-Up and Aroon-Down are complementary indicators that measure the elapsed time between new x-day highs and lows, respectively.

• Learn how to use the Aroon Indicators trading strategy to detect changes in the trend direction with deadly accuracy.
• We would recommend that you apply the Aroon indicator strategy with the standard 25-periods as well because it will help you stay “in sync” with the other traders in the market.
• This surge/breakout signaled the end of the consolidation and the beginning of the advance.
• The Aroon up and down indicator requires tracking the high and low prices over the last 25 periods.

The core of the technical analysis is to identify the trend… All information on The Forex Geek website is for educational purposes only and is not intended to provide financial advice. Any statements about profits or income, expressed or implied, do not represent a guarantee. Your actual trading may result in losses as no trading system is guaranteed.

What Does the Aroon Indicator Tell You?

The Aroon Oscillator can generate trade signals or provide insight into the current trend direction of an asset. Market analysts and traders can obtain a number of trading signals from the Aroon indicators. The Aroon indicators take rather an inverse stance compared to the usual momentum oscillators, as the Aroon focus is more on time relative to price rather than price relative to time. The average true range is a market volatility indicator used in technical analysis. The highest high and lowest low being measured do not necessarily represent the all-time highest price or all-time lowest price. Instead, they indicate the highest and lowest prices over a predetermined length of time.

The Aroon up and down lines will decline as the elapsed time between a new high or low increase. Luckily, we don’t have to remember the math behind the Aroon calculation. Aroon-down is showing how many periods it has been since the last 25-period low. Aroon-up is showing how many periods it has been since the last 25-period high. As the name suggests this oscillator was designed to reveal the early beginning of a new trend.

Limitations of Using the Aroon Oscillator

The best indicator to identify a trend change and the strength of the trend is the Aroon oscillator. This simple scan searches for stocks where Aroon-Up and Aroon-Down are both below 20. A consolidation is often present when both indicators are at such low levels. The first to break above 50 indicates the next directional clue. When Aroon Up remains high from consecutive new highs, the oscillator value will be high, following the uptrend.

Aroon is one of the handful of technical indicators that can help you achieve consistent success with trend trading, as well as trading within a range. The Aroon Indicator is most definitely a very good indicator for identifying both trends as well as periods of consolidation. That being said, it is an indicator best used a complementary piece. Knowing the overall trend is an important part to any trading strategy. Using Aroon as a foundation and combining it with additional indicators which are used to generate signals is probably the most effective way to use Aroon. The Aroon indicator chart formulas primarily focus on the amount of time between highs and lows; its lines show the percentage of the specified period between the price extremes.

How this indicator works

Another good function of the Aroon Indicator is its ability to identify periods of consolidation. This occurs when Both the Aroon-Up and the Aroon-Down have dropped below 50. This shows a period of sideways trading because neither the Bullish Trend nor Bearish Trend has any strength.

On top of just the Aroon-Up moving upwards, the Aroon-Down needs to move downwards to confirm the bullish trend. Once Aroon-up crosses above Aroon-down a buy signal is generated. A reading close to the 0 level indicates a weak bullish/bearish trend. The trick to determine the trend reversal and its strength relies on understanding the Aroon oscillator formula.

How to trade with Aroon indicator

Pivot points are an excellent leading dukascopy forex broker review in technical analysis. Technical analysis is the key to profitable forex trading. Volume indicators indirectly measure the trade volumes, providing information on the activity of buyers and sellers. Aroon is a trend-following indicator and oscillator that defines the trend direction and strength. It provides good-quality signals provided the settings are correct. Let me explain an example of employing the Aroon indicator in Forex trading as a primary tool to generate entry and exit signals.

• The two Aroon indicators are the Aroon-Up and Aroon-Down, sometimes referred to as the bullish Aroon and bearish Aroon.
• A 14 Day Aroon-Down will do the same thing except is will calculate a number based of the number of days since a 14 day low.
• On top of just the Aroon-Up moving upwards, the Aroon-Down needs to move downwards to confirm the bullish trend.
• When Aroon Up remains high from consecutive new highs, the oscillator value will be high, following the uptrend.
• What is the VWAP and how to use it in MT4 and other platforms?

It’s evident that prices are flat and consolidating when no new highs or lows are being recorded. When both indicator lines move lower in parallel, it indicates a trading range has formed, with no new highs or lows being posted. The Aroon Indicator is an effective tool used in the technical analysis of an asset’s price.

He has been a professional day and swing trader since 2005. Cory is an expert on stock, forex and futures price action trading strategies. The Aroon indicator system is a unique member of the oscillating family of technical tools. Its presentation is based on the locations of two separate lines when most indicators generate alerts from a single indicator curve. As with other oscillators, it embodies overbought and oversold territories, but it also includes a measure of the strength of the prevailing trend. The Aroon Indicator is composed of two fluctuating curves.

Price may have already made a significant move up or down and be ready to retrace when the trade signal first appears. The idea is that strong uptrends will regularly see new highs, and strong downtrends will regularly see new lows…. One is if both the Aroon-Up and the Aroon-Down are below 50. The other is if both Aroon-Up and Aroon-Down are moving lower in parallel. It makes sense that if both readings are below 50 it indicates consolidation. A reading below 50 for both indicators means there have been no new highs or lows recorded in over 13 days.

If it remains persistently between 70 and 100, and the Aroon-Up remains between 0 and 30, then a new downtrend is underway. When Aroon-Up and Aroon-Down move in parallel with each other at roughly the same level, then price is range trading or consolidating. The Kijun Line, or Base Line, is a component of the Ichimoku Cloud indicator. It provides trade signals when used with the Conversion Line. Moving average convergence/divergence is a momentum indicator that shows the relationship between two moving averages of a security’s price.