Aroon Indicator | Indicator Series

In 1995, The Aroon indicator was developed by Tushar Chande, the founder of a few technical analysis tools such as the Chande Momentum Oscillator and the Dynamic Momentum Index. 

The purpose of the Aroon indicator is to signify trends in asset prices and to determine the strength of the trend. (Click this link to access an economic calendar for your trading strategies )

Two lines determine the strength of the trends, the Aroon-up line, which measures the strength of uptrends, and the Aroon-down line, which measures the strength of downtrends.

Typical momentum oscillators focus on price relative to time.  The Aroon indicators observe in the opposite way, time relative to price.  They measure the amount of time periods since a high or low price closing. 

The idea behind these indicators is that strong uptrends will regularly see new high price closings and, conversely, strong downtrends will regularly see new low price closings. 

The Aroon-up indicator measures how much time passes before a new high price closing occurs.   The Aroon-down indicator measures how much time passes before a new low price closing is recorded.

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Trend Forming

The Aroon-up and Aroon-down indicators fluctuate between 0 and 100 while crossing over and under the 50 centreline. 

If the Aroon-up line crosses above the Aroon-down line, this may signify an uptrend is forming.  On the other hand, if the Aroon-down crosses above the Aroon-up, this can signal a possible downtrend forming.

Another signal of a forming uptrend is when the Aroon-up reaches 100. If the Aroon-down line reaches 100, this signals a downtrend may be forming.

Trend Formed And Direction Determined

If the Aroon-up line unceasingly remains between 70 and 100 and the Aroon-down remains between 0 and 30, an uptrend is in progress.  Conversely, if the Aroon-down line resolutely remains between 70 and 100 and the Aroon-up remains between 0 and 30, this signals a downtrend is now in progress.

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