- Type of Indicator: Trend-following
- Creator: Tushar Chande
- When Created: 1995
- First Mentioned In: The New Technical Trader by Tushar Chande
What Is The Aroon?
The Aroon indicator is a technical analysis tool that is used to identify the strength and direction of a trend.
It consists of two lines, the Aroon up and the Aroon down. The lines measure the time it takes for the price to reach its highest and lowest levels over a time period.
The up line measures the time it takes for the price to reach its highest level over a specific time period.
The down line measures the time it takes for the price to reach its lowest level over the same period. The tool can be used to identify potential trend reversals and to confirm trends that are already in place.
How Do You Read The Aroon?
The indicator provides traders with information about the strength and direction of a trend. The tool can be used to identify potential trend reversals and to confirm trends that are already in place.
How Does The Indicator Work?
The Aroon indicator works by measuring the time it takes for the price to reach its highest and lowest levels over a specific time period.
When the up line is above the down line, it indicates that the price is in an uptrend. In contrast, when the down line is above the up line, it indicates that the price is in a downtrend.
How Is The Aroon Calculated?
The calculation for the Aroon up line involves finding the number of days since the highest high over a specific time period.
The resulting value is then divided by the total number of days in the period and multiplied by 100 to produce a percentage value.
The calculation for the Aroon down line is the same, but it involves finding the number of days since the lowest low over the same time period.
The Encyclopedia Of Technical Market Indicators, Second Edition
How Do You Use The Aroon?
Trend Identification: Traders can use the indicator to identify potential trend reversals and to confirm trends that are already in place. When the up line is above the down line, it may indicate an uptrend. When the down line is above the up line, it may indicate a downtrend.
Entry and Exit Points: Traders can use the indicator to identify potential entry and exit points. For example, a buy signal may be generated when the up line crosses above the down line. In contrast, a sell signal may be generated when the down line crosses above the up line.
Divergence: Traders can also use the indicator to identify potential divergence between the price and the indicator. For example, if the price is making higher highs while the Aroon up line is making lower highs, it may indicate a potential trend reversal.
Additional Trading & Risk Management Tips
Use the Aroon in conjunction with other technical indicators and chart patterns to improve the accuracy of your trading signals.
Adjust the period of the indicator to suit your specific trading style and the market you are analyzing. Shorter periods are more sensitive to price movements. Longer periods are less sensitive and may be more useful for identifying longer-term trends.
Be aware that the Aroon is a lagging indicator. This means it reflects past price movements and may not accurately predict future price movements. Therefore, use it in conjunction with other technical analysis tools to make more informed trading decisions.
Use proper risk management techniques to protect your investments. Always consider other factors in addition to the Aroon indicator when making trading decisions.
Monitor the position of the up and down lines relative to each other and to the zero line for potential buy and sell signals. Adjust your trading strategy accordingly.
Consider using the tool in conjunction with support and resistance levels or trendlines to confirm potential entry and exit points or to identify areas of confluence.
Finally, practice using the Aroon indicator on historical data and demo trading accounts to evaluate its effectiveness for your specific trading style and market conditions before incorporating it into your live trading strategy. You can practice using the Aroon using a TradingView account to backtest performance.