Aroon Indicator is used to identify the existence, changes, and corrective retracements and gauge the strength of an ongoing trend in financial markets.
What Is an Aroon Indicator?
In the Sanskrit language, the word “Aroon” signifies “the earliest light of the dawn.” Because the indications are meant to identify the start of a new trend, Chande picked this moniker for this technical indicator. Aroon Indicators can be used by traders to detect developing trends, identify consolidations, define corrective periods, and predict reversals in the asset’s price.
The two Aroon indicators essentially track when the most recent highs and lows happened, correspondingly. Lower Aroon values indicate a more distantly occurring high or low, whereas higher Aroon values indicate a more recently happening high or low. A stronger trend is indicated by higher Aroon values, whereas a weaker trend or no trend is indicated by lower Aroon values.
The Aroon-Up and Aroon-Down indicators monitor the number of time periods since a price struck an x-day high or low. For example, the number of days since a 25-day high is noted by a 25-day Aroon-Up while the number of days since a 25-day low is counted by the 25-day Aroon-Down indicator. This way, the Aroon indicators are different from traditional momentum oscillators in that they are concerned with price in relation to time.
The value of indicators range between zero and one hundred. A reading of more than 50 indicates that a high/low (whichever line is higher than 50) occurred within the previous 12 periods. A value of less than 50 indicates that the high/low occurred during the 13-period time frame. The weaker the uptrend and the greater the decline, the lower the Aroon Up, and vice versa.
How to Calculate Aroon Indicator Values?
Here’s how you can calculate the Aroon Indicator:
- Choose a specific period “X” for the “Aroon Indicator”
- Use the following formulas to calculate AroonUp and AroonDown indicators:
AroonUp = 100 * ((X – Number of periods since highest high)/X);
AroonDown = 100 * ((X – Number of periods since lowest low)/X);