Aroon Indicator

Editorial Chief

Author

November 22, 2023

Published

The Aroon Indicator is a technical analysis tool used to assess the strength and direction of a trend in a financial market. It was developed by Tushar Chande in 1995. The indicator consists of two lines: the Aroon Up line and the Aroon Down line.

 

Aroon Up Line

  • The Aroon Up line measures the number of periods since the highest closing price occurred within a specified time frame. It is expressed as a percentage.
  • A reading of 100% means the current closing price is the highest in the defined period, indicating a strong upward trend.

 

Aroon Down Line

  • Conversely, the Aroon Down line measures the number of periods since the lowest closing price occurred within the same time frame. Like Aroon Up, it is also expressed as a percentage.
  • A reading of 100% indicates that the current closing price is the lowest in the specified period, suggesting a strong downward trend.

 

Interpretation

  • Traders and analysts typically use the relationship between the Aroon Up and Aroon Down lines to assess the strength and potential direction of a trend.
  • When the Aroon Up line is above the Aroon Down line, it suggests that the uptrend is gaining strength.
  • Conversely, when the Aroon Down line is above the Aroon Up line, it signals that the downtrend is strengthening.
  • The crossing of these two lines can be used as a signal for potential trend changes. For example, if the Aroon Up crosses above the Aroon Down, it may indicate a shift from a downtrend to an uptrend and vice versa.

 

Aroon Oscillator

  • The Aroon Indicator can also be presented as a single line known as the Aroon Oscillator, which is the difference between the Aroon Up and Aroon Down lines.
  • The oscillator fluctuates between -100 and +100. Positive values indicate the dominance of the uptrend, while negative values suggest the dominance of the downtrend.

 

Timeframe Consideration

  • The effectiveness of the Aroon Indicator is influenced by the chosen time frame. Shorter time frames provide more sensitive but potentially erratic signals, while longer time frames offer smoother signals but may lag in detecting trend changes.

 

Use in Conjunction with Other Indicators

  • Traders often use the Aroon Indicator in conjunction with other technical analysis tools to validate signals and enhance the overall analysis of a market.

 

The Aroon Indicator is a useful tool for assessing trends and potential trend reversals in financial markets. By analyzing the relationship between the Aroon Up and Aroon Down lines, traders can make informed decisions about entering or exiting positions.