Exploring Oscillators and Indicators: Aroon Indicator
  1. Exploring Oscillators and Indicators: Introduction
  2. Exploring Oscillators and Indicators: Leading And Lagging Indicators
  3. Exploring Oscillators and Indicators: On-Balance Volume
  4. Exploring Oscillators and Indicators: Accumulation/Distribution Line
  5. Exploring Oscillators and Indicators: Average Directional Index
  6. Exploring Oscillators and Indicators: Aroon Indicator
  7. Exploring Oscillators and Indicators: MACD
  8. Exploring Oscillators and Indicators: RSI
  9. Exploring Oscillators and Indicators: Stochastic Oscillator
  10. Exploring Oscillators and Indicators: Market Indicators
  11. Exploring Oscillators and Indicators: Conclusion

Exploring Oscillators and Indicators: Aroon Indicator


By Chad Langager and Casey Murphy, senior analyst of ChartAdvisor.com

The Aroon is a trending indicator used to measure if a security is in a trend and the magnitude of that trend. The indicator can also be used to identify when a new trend is set to begin.

The indicator is comprised of two lines, an Aroon-up line and an Aroon-down line.

The Aroon-up line measures the amount of time it has been since the highest price during the time period. The Aroon-down line, on the other hand, measures the amount of time since the lowest price during the time period.

If a 100 period timeframe is used and it has been 25 periods since the highest price in the last 100 days the Aroon up value would currently be set at 75. If it has been 80 periods since the lowest period the Aroon down would be 20. The numbers computed for each of the up and down are then plotted as a line on the Aroon indicator between a range of zero and 100.

Calculation


In general, the security is considered to be in an uptrend when the Aroon-up line is above 70 along with being above the Aroon-down line. The security is in a downtrend when the Aroon-down line is above 70 and also above the Aroon-up line. The trend is considered to be in a consolidation pattern when the two lines are near each other in between 70 and 30.


As you can see from the chart above, trend reversal signals are given when the Aroon up and Aroon down cross each other or the Aroon lines cross the 50 line on the chart. Note: These two events do not always occur at the same time like they did in the chart above. If an Aroon up falls below the 50 like it did in the chart, it signals that the uptrend is weakening. The downtrend is weakening when the Aroon down crosses below the 50 line. It is the same idea when the Aroon up or down crosses above the 50 it signals that the trend is strengthening.

Aroon Oscillator
An expansion of the Aroon is the calculation of the Aroon oscillator, which simply plots the difference between the Aroon-up and -down lines. This line is again plotted between a range of -100 and 100. The centerline at zero in the oscillator is considered to be a major signal line determining the trend.

The higher the value of the oscillator from the centerline point, the more upward strength there is in the security and the lower from the centerline the more downward pressure.

The Aroon lines and Aroon oscillators are fairly simple concepts to comprehend but yield powerful information about trends. This is another great indicator to add to the arsenal of any technical trader.

Exploring Oscillators and Indicators: MACD

  1. Exploring Oscillators and Indicators: Introduction
  2. Exploring Oscillators and Indicators: Leading And Lagging Indicators
  3. Exploring Oscillators and Indicators: On-Balance Volume
  4. Exploring Oscillators and Indicators: Accumulation/Distribution Line
  5. Exploring Oscillators and Indicators: Average Directional Index
  6. Exploring Oscillators and Indicators: Aroon Indicator
  7. Exploring Oscillators and Indicators: MACD
  8. Exploring Oscillators and Indicators: RSI
  9. Exploring Oscillators and Indicators: Stochastic Oscillator
  10. Exploring Oscillators and Indicators: Market Indicators
  11. Exploring Oscillators and Indicators: Conclusion
RELATED TERMS
  1. Golden Cross

    A crossover involving a security's short-term moving average ...
  2. Cup and Handle

    A pattern on bar charts resembling a cup with a handle. The cup ...
  3. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, ...
  4. Confirmation

    The use of an additional indicator or indicators to substantiate ...
  5. Qualitative Analysis

    Securities analysis that uses subjective judgment based on nonquantifiable ...
  6. Discounted Cash Flow (DCF)

    Discounted cash flow (DCF) is a valuation method used to estimate ...
RELATED FAQS
  1. What are the best technical indicators to complement the Vortex Indicator (VI)?

    To find out the intended trading strategy that the vortex indicator (VI) was created for – including complementary technical ... Read Full Answer >>
  2. What do traders determine when there is divergence between an oscillator and a moving ...

    When developing an effective trading strategy, analysts and traders look to a number of different indicators to assess the ... Read Full Answer >>
  3. How are Morning Star patterns interpreted by analysts and traders?

    The morning star candlestick pattern can be an especially reliable indicator of trend reversal, though some signals are stronger ... Read Full Answer >>
  4. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  5. Can working capital be too high?

    A company's working capital ratio can be too high in the sense that an excessively high ratio is generally considered an ... Read Full Answer >>
  6. What are some of the most common technical indicators that back up Doji patterns?

    The doji candlestick is important enough that Steve Nison devotes an entire chapter to it in his definitive work on candlestick ... Read Full Answer >>
Trading Center