Aroon
Parameters:
- Periods: The number of periods used to calculate the Aroon Up and Aroon Down lines. A setting of 14 periods is typical, which helps identify the strength and direction of trends over a medium-term period.
Style
- Customizable line style and color for the Aroon Up and Aroon Down lines.
The Aroon indicator is a tool used in trading analysis. It helps identify trend changes and measures the strength of a trend. This calculation determines the duration required for the price to peak and trough within a given timeframe, typically 14 days. Developed by Tushar Chande in 1995, the name \'Aroon\' is Sanskrit for \'Dawn\'s Early Light,\' reflecting the indicator\'s ability to signal the start of a new trend.
How Aroon Works: The Aroon indicator is composed of two distinct lines, named Aroon Up and Aroon Down.
Aroon Up calculates the time, expressed in periods since a high was last reached over a 14-day span. This measure is presented as a percentage. The formula for this calculation is as follows:
Aroon Up=(14 - Periods Since 14-day High14)×100Aroon Up=(1414 - Periods Since 14-day High)×100
Aroon Down measures the number of periods since a 14-day low and is also expressed as a percentage. The formula is:
Aroon Down=(14 - Periods Since 14-day Low14)×100Aroon Down=(1414 - Periods Since 14-day Low)×100
When the Aroon Up is above the Aroon Down, it indicates bullish momentum, and the higher the Aroon Up, the stronger the uptrend. Conversely, when the Aroon Down is above the Aroon Up, it suggests bearish momentum, and the higher the Aroon Down, the stronger the downtrend.
Key Aspects of Aroon:
Trend Direction: By analyzing which line is on top, traders can get an insight into the direction of the trend.
Trend Strength: If both lines are high, or if the Aroon Up is above 70, it suggests a strong uptrend, and if the Aroon Down is above 70, it indicates a strong downtrend.
Trend Beginnings and Endings: The Aroon is particularly good at signaling the beginnings of trends. A crossover of the Aroon Up above the Aroon Down may signal the start of an uptrend, while a crossover of the Aroon Down above the Aroon Up can signal the beginning of a downtrend.
Trend Weakness or Consolidation: When both lines are low (e.g., below 50), it can indicate a weakening trend or a consolidation phase.
Application of Aroon:
The Aroon indicator can initiate trades at the beginning of a trend, exit trades when the trend weakens, or avoid trades during market consolidation periods. It's typically presented as an oscillator with values ranging between 0 and 100. A value of 100 indicates a strong trend, while a value of 0 suggests a lack of trend.
Limitations:
Lagging Nature: The Aroon indicator can lag because it is based on historical data.
False Signals: During volatile market conditions, the Aroon can give false signals or be too erratic to interpret clearly.
Sideways Markets: The indicator may struggle in sideways markets, where the lack of clear highs or lows can make the Aroon lines move parallelly, offering little directional insight.
The Aroon indicator is a flexible instrument that can indicate the beginning of a new trend, the strength of a trend, and potential consolidations or reversals. The indicator offers valuable insights. However, it is most effective when used alongside other forms of analysis. These include price action and additional technical indicators, which help confirm the signals the indicator provides. Traders who utilize the Aroon can potentially improve their ability to time their trades in alignment with new or existing trends.