Aroon Indicator

AAA

DEFINITION of 'Aroon Indicator'

A technical indicator used for identifying trends in an underlying security and the likelihood that the trends will reverse. It is made up of two lines: one line is called "Aroon up", which measures the strength of the uptrend, and the other line is called "Aroon down", which measures the downtrend. The indicator reports the time it is taking for the price to reach, from a starting point, the highest and lowest points over a given time period, each reported as a percentage of total time.

 

Aroon Indicator

INVESTOPEDIA EXPLAINS 'Aroon Indicator'

The Aroon indicator was developed by Tushar Chande in 1995. Both the Aroon up and the Aroon down fluctuate between zero and 100, with values close to 100 indicating a strong trend, and zero indicating a weak trend. The lower the Aroon up, the weaker the uptrend and the stronger the downtrend, and vice versa. The main assumption underlying this indicator is that a stock's price will close at record highs in an uptrend, and record lows in a downtrend.

This indicator is very similar to the directional movement index (DMI) that was developed by Welles Wilder, which is also a very popular indicator used to measure the strength of a given trend.

RELATED TERMS
  1. Indicator

    Indicators are statistics used to measure current conditions ...
  2. Countertrend Trading

    A type of swing-trading strategy that assumes a current trading ...
  3. Trend

    The general direction of a market or of the price of an asset. ...
  4. Technical Analysis

    A method of evaluating securities by analyzing statistics generated ...
  5. Crossover

    The point on a stock chart when a security and an indicator intersect. ...
  6. Directional Movement Index - DMI

    An indicator developed by J. Welles Wilder for identifying when ...
RELATED FAQS
  1. What are the differences between an Aroon indicator and an Aroon oscillator?

    The Aroon oscillator is an extension of the Aroon indicator. More accurately, it is an interpretation of the relationship ... Read Full Answer >>
  2. What are the main trading signals of the Aroon oscillator?

    The Aroon oscillator, the most common derivation of the Aroon indicator, is used to determine if a trading instrument is ... Read Full Answer >>
  3. What technical indicators can I use to find undervalued stock?

    Technical analysis uses statistics related to market activity, such as past prices and the volume of shares traded, to identify ... Read Full Answer >>
  4. How do I Implement a Forex Strategy when spotting a Sanku (Three Gaps) Pattern?

    A forex trading strategy can easily be implemented to profit from a market reversal signal that comes from the sanku, or ... Read Full Answer >>
  5. How can I profit from monitoring open interest?

    Since markets experience asymmetric information between parties, monitor whether there is an imbalance between the open interest ... Read Full Answer >>
  6. How is liquidity risk captured by the cash conversion cycle (CCC)?

    Liquidity risk is captured by the cash conversion cycle (CCC) through the use of days inventory outstanding, days sales outstanding ... Read Full Answer >>
Related Articles
  1. Active Trading

    3 Technical Tools To Improve Your Trading

    Find out how volume, the Aroon indicator and Fibonacci numbers can improve your profits.
  2. Active Trading

    Finding The Trend With Aroon

    Don't be confused about whether a long-term trend will continue, stall or reverse.
  3. Chart Advisor

    ChartAdvisor for May 29 2015

    Weekly technical summary of the major U.S. indexes.
  4. Trading Strategies

    Pros & Cons Of Day Trading Vs Swing Trading

    Day trading involves making dozens of trades in a single day, based on technical analysis and sophisticated charting systems. Swing trading is based on identifying swings in stocks, commodities, ...
  5. Trading Strategies

    How To Seek Out Winning Trades

    Hunt for new winners with carefully-drawn scanning filters and third party services.
  6. Charts & Patterns

    The 6 Most Profitable Grocery Stores

    These are the six largest grocery store chains operating in the United States.
  7. Chart Advisor

    Trade These Stocks on a Re-test of Breakout Level

    You can't always catch the breakout. If you miss it, you can still get in. Here are 4 stocks to watch for your "second chance" entry.
  8. Chart Advisor

    Cup and Handle Chart Patterns Forming Right Now

    A cup and handle is a relatively common chart pattern which can be used in various ways. Here it highlights stocks poised to make new highs.
  9. Technical Indicators

    6 Stocks for Millennials (or Anyone)

    Savvy Millennial investors looking for long-term winners should take a look at these stocks.
  10. Chart Advisor

    Long-Term Charts Suggest The Next Move Is Downward

    It is often a strategic move to remove oneself from the daily fluctuations and to broaden the time horizon to get a better idea of the long-term trend.

You May Also Like

Hot Definitions
  1. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  2. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  5. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center