What is the 'Aroon Oscillator'

An Aroon Oscillator is a trend-following indicator that uses aspects of the Aroon Indicator ("Aroon Up" and "Aroon Down") to gauge the strength of a current trend and the likelihood that it will continue. The Aroon Oscillator is calculated by subtracting Aroon Up from Aroon Down. Readings above zero indicate that an uptrend is present, while readings below zero indicate that a downtrend is present.

BREAKING DOWN 'Aroon Oscillator'

The Aroon Oscillator was developed by Tushar Chande in 1995 as part of the Aroon Indicator system. Chande’s intentions for the system were to serve as indicators for new trends. Thus, the name aroon is derived from Sanskrit language and translated to mean “dawn’s early light.”

Aroon Indicators

The Aroon Indicator system includes the Aroon Up, Aroon Down and Aroon Oscillator. The Aroon Up and Aroon Down lines must be calculated first before drawing the Aroon Oscillator.

This indicator typically uses a timeframe of 25 days however the timeframe is subjective. Using a 25-day timeframe, the Aroon Up and Aroon Down timeframes are calculated as follows:

Aroon Up = ((25 - Days Since 25-Day High) / 25) x 100

Aroon Down – ((25 - Days Since 25-Day Low) / 25) x 100

These indicator lines will be between zero and 100. This methodology provides an indicator that provides insight on the relationship between time and a security’s price.

On a scale of zero to 100, the higher the indicator’s value, the stronger the trend. For example, a price reaching new highs nearly everyday would have an Aroon Up value of 96 ((25-1)/25)x100). Similarly, a price reaching new lows nearly everyday would have an Aroon Down value of 96 ((25-1)x100).

Aroon Oscillator Calculation

As a security’s price oscillates it creates an opportunity to capture the difference through the Aroon Oscillator. Thus, the Aroon Oscillator is calculated by subtracting a security’s Aroon Up value from its Aroon Down value.

The highs and lows used in the Aroon Up and Aroon Down calculations help to create an inverse relationship between the two lines. When the Aroon Up value increases, the Aroon Down value will typically see a decrease and vice versa.

Inferences from the Aroon Oscillator

The Aroon Oscillator is a line that can fall between -100 and 100. A high Oscillator value is an indication of an uptrend while a low Oscillator value is an indication of a downtrend.

When Aroon Up remains high from consecutive new highs, the Oscillator value will be high, following the uptrend. When a security’s price is on a downtrend with many new lows, the Aroon Down value will be higher resulting in a lower Oscillator value.

The Aroon Oscillator line can be included with or without the Aroon Up and Aroon Down lines in a technical analysis diagram. Significant changes in the direction of the Aroon Oscillator can help to identify a new trend. Traders will often use this oscillator in conjunction with other signals to identify and confirm a reversal.

RELATED TERMS
  1. Klinger Oscillator

    The Klinger Oscillator was developed to determine the long-term ...
  2. McClellan Oscillator

    The McClellan Oscillator is a market breadth indicator that is ...
  3. Chaikin Oscillator

    Chaikin Oscillator is a technical analysis tool used to measure ...
  4. Countertrend Trading

    Countertrend trading is a type of swing trading strategy that ...
  5. Technical Indicator

    Technical indicators are mathematical calculations based on the ...
  6. DeMarker Indicator

    The DeMarker indicator is a technical analysis tool that aims ...
Related Articles
  1. Trading

    Finding The Trend With Aroon

    Don't be confused about whether a long-term trend will continue, stall or reverse.
  2. Trading

    3 Technical Tools to Improve Your Trading

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

    Percentage Price Oscillator – An 'Elegant Indicator'

    The percentage price oscillator, which measures momentum, is among the more sophisticated tools in the technical analysis arsenal.
  4. Trading

    Best technical indicators to pair with the stochastic oscillator

    Learn how the stochastic oscillator indicator is sensitive to price, and discover technical indicators traders use to complement it such as the RSI and MACD.
  5. Trading

    An Introduction to Oscillators

    Find out how this indicator may help improve the average investor's entry and exit points.
  6. Trading

    How to Use the Chaikin Oscillator

    What's the best way to reconcile increasing or decreasing volume with price fluctuations? Enter the Chaikin Oscillator.
  7. Trading

    Combining Trend and Countertrend Indicators

    In the long run, one of the best approaches might be to meld these two disparate methods.
RELATED FAQS
  1. What are the most common momentum oscillators used in day trading?

    Take a look at some commonly used momentum oscillators that can also be used for intraday trading, such as stochastic oscillators ... Read Answer >>
  2. How do I read and interpret an Stochastic Oscillator?

    Understand the basics of the stochastic oscillator and how analysts and traders use this measure of trend momentum to predicts ... Read Answer >>
  3. How do I use Stochastic Oscillator to create a forex trading strategy?

    Learn about the stochastic oscillator and how to it is used to create an effective forex trade strategy, including how to ... Read Answer >>
  4. What is the difference between Stochastic Oscillator and Stochastic Momentum Index?

    Discover how the stochastic oscillator and the Stochastic Momentum Index differ and why the latter is considered a more refined ... Read Answer >>
  5. What are the main differences between Williams %R oscillator & The Relative Strength ...

    Learn about the Williams %R indicator and how this momentum oscillator differs from the relative strength index (RSI) both ... Read Answer >>
  6. Is a Slow Stochastic Effective in Day Trading?

    The good news is that most technical indicators can be adjusted to be of value to a day trader. Read Answer >>
Trading Center