The Aroon indicator is actually comprised of two separate indicators: Aroon up and the Aroon down. Aroon up is calculated based on the length of time since a particular security or index has reached a recent high. Conversely, Aroon down is a measurement of time since a recent low. Both indicators are then plotted as lines on a range of zero to 100, placed underneath a bar or candlestick chart.
The Aroon system was developed by Tushar Chande in 1995 as a way to identify the end of a current trend and the beginning of a new one. Its secondary use is as a trend strength indicator.
Aroon up, considered the bullish Aroon, is calculated as follows:
Number of PeriodsNumber of Periods − Number of Periods Since Highest High × 100
Aroon down, the bearish Aroon, uses this formula:
Number of PeriodsNumber of Periods − Number of Periods Since Lowest Low × 100
The highest high and lowest low being measured do not necessarily represent the all-time highest price or all-time lowest price. Instead, they indicate the highest and lowest prices over a predetermined length of time. For example, a 60-day Aroon indicator would have the number of days since the high and the number of days since the low during that 60-day period. Any older prices are ignored.
Aroon values decline as time elapses since the most recent high or low. A value of 50 is the cut-off point and means that the new high or low occurred during the exact middle of the time period in which the Aroon is being applied. With the 60-day example, an Aroon down reading at 50 means that the lowest low occurred 30 days ago.