Aroon Indicator

The Aroon indicator, developed by Tushar Chande in 1995, is a technical analysis tool that measures the strength of a trend and identifies potential changes in market direction. It is composed of two lines: the Aroon Up and the Aroon Down. These lines help traders determine whether an asset is in a trending phase or a consolidation phase.

Key Components of the Aroon Indicator:

1. Aroon Up Line: This line measures how long it has been since the highest high within a given period. A high Aroon Up value indicates a strong upward trend.

2. Aroon Down Line: This line measures how long it has been since the lowest low within a given period. A high Aroon Down value indicates a strong downward trend.

3. Range: The values of both lines range between 0 and 100, where higher values suggest stronger trends.

How to Calculate the Aroon Indicator

The Aroon indicator is calculated using a specific period (usually 14 days) and is based on the following formulas:

• Aroon Up = [(Number of periods since the highest high) / (Total periods)] × 100
• Aroon Down = [(Number of periods since the lowest low) / (Total periods)] × 100

These formulas calculate how recently a new high or low occurred, giving traders insights into the direction of the trend.

Analyzing the Aroon Indicator

To analyze the Aroon indicator, follow these steps:

1. Load the Chart for the Asset:

   • Open the charting platform.
   • Load the chart for the specific asset you wish to analyze.

2. Set the Timeframe:

   • Choose a suitable timeframe based on your trading strategy. The Aroon indicator can be used on various timeframes, such as daily, weekly, or intraday charts.

3. Add the Aroon Indicator to the Chart:

   • Navigate to the Indicators section.
   • Search for the Aroon Indicator in the list of available indicators.
   • Click on the Aroon indicator to add it to your chart. The Aroon Up and Aroon Down lines will appear in a separate panel below the main price chart.

   

4. Interpret the Aroon Signals:

   • Aroon Up Above 70: When the Aroon Up line is above 70 and the Aroon Down line is below 30, it indicates a strong uptrend.
   • Aroon Down Above 70: When the Aroon Down line is above 70 and the Aroon Up line is below 30, it signals a strong downtrend.
   • Crossover: When the Aroon Up crosses above the Aroon Down, it suggests the beginning of a bullish trend, while a crossover of the Aroon Down above the Aroon Up indicates a potential bearish trend.
   • Flat Lines: When both lines are near the 50 mark or lower, it indicates a lack of a clear trend, suggesting sideways or consolidating market conditions.