The Aroon indicator is a technical indicator that can identify trend changes in the price of an asset, as well as that trend's strength. The Aroon indicator essentially measures the time between highs and the times between lows over various periods. Strong uptrends will regularly see new highs, and strong downtrends will regularly see new lows. The indicator consists of the AroonUp line and the AroonDown line. The Aroon indicator was developed by Tushar Chande.

Formula and How to Calcula🧸te the Aroon Indicator

 $\begin{aligned} \text{Aroon Up}&= \frac{25-\text{Periods Since 25 period High}}{25} \ast100\\ \text{Aroon Down}&=\frac{25-\text{Periods Since 25 period Low}}{25}\ast100 \end{aligned}$Aroon UpAroon Down​=2525−Periods Since 25 period High​∗100=2525−Periods Since 25 period Low​∗100​

The Aroon🍒 calculation requir𝕴es the tracking of the high and low prices, typically over 25 periods.

1. Track the highs and lows for the last 25 periods on an asset.
2. Note the number of periods since the last high and low.
3. Plug these numbers into the Up and Down Aroon formulas.

Understanding the Aroon Indicator

The Aroon indicator was created by Tushar Chande in 1995. It is used by technical analysts to identify how strong asset price trends are as well as any changes in asset prices. The main assumption 澳洲幸运5官方开奖结果体彩网:underlying 𒅌this indicator is that a stock's price will close regularly at new highs during an uptrend, and regularly make new lows in a downtrend. This is primarily shown through an up line and a down line.

The AroonUp and the AroonDown measure the strength of the uptrend and the strength of the 澳洲幸运5官方开奖结果体彩网:downtrend, respectively. These lines fluctuate between zero and 100. Values close to 100 indicate a strong trend and values near zero indicate a weak ⭕trend where the lower the AroonUp, the weaker the uptrend and the stronger the downtrend, a❀nd vice versa.

The indicator focuses on the last 25 perio😼ds but is scaled to 🌄zero and 100. Therefore, an AroonUp reading above 50 means the price made a new high within the last 12.5 periods. A reading near 100 means a high was seen very recently. The same concepts apply to the AroonDown. When it is above 50, a low was witnessed within the 12.5 periods. An AroonDown reading near 100 means a low was seen very recently.

澳洲幸运5官方开奖结果体彩网:Crossovers can signal entry or exit points. Up crossing above Down can be a signal to buy. Down crossing above Up may be a signal to sell. When both indicators are below 50, it can signal that the price is 澳洲幸运5官方开奖结果体彩网:consolidating. New highs or lows are not being created.

Limitations of Using the Aroon Indicator

The Aroon indicator may signal a good entry or exit point. In other cases, it will provide poor or false signals. The buy or sell signal may occur too late after a substantial price move has already occurred. This happens because the indicator looks backward and isn't predictiv�𝓀�e.

A crossover may look good on the indicator, but that doesn't mean the price will necessarily make a big move. The indicator isn't factoring the size of moves, it only cares about the number of days since a high or low.

Even if the price is relatively flat, crossovers will occur as eventually a new high or low will be made within the last 25 periods. Traders still need to use 澳洲幸运5官方开奖结果体彩网:price analysis, and potentially other indicators, to make informed trading decisions. Relying solely on one indicator isn't advised.

Aroon In🥂d𒁏icator vs. Directional Movement Index (DMI)

The Aroon indicator is similar to the �♎�澳洲幸运5官方开奖结果体彩网:directional movement index (DMI), which was developed by J. Welles Wilder in 1978. Thi💫s is also a technical indicator that uses up and down lines to show the direction of a trend.

The main difference between these two indicators is that the Aroon indicator formulas are primarily focused on the amount of time between highs and lows. The DMI, on the other hand, measures the price difference between the current highs/lows and prior highs/lows. Therefore, the main factor in the DMI is the price rather than time.

Example of How to Use the Aroon Indicator

The following chart shows an example of the Aroon indicator and how it can be interpreted. The chart shows there is both the Aroon indicator and an 澳洲幸运5官方开奖结果体彩网:oscillator that combines both lines into a single reading of between 100 and -100.

The crossover of the AroonUp and AroonDown indicates a reversal in the trend. While the index was trendin♓g (before the reversal), the AroonDownℱ remained very low. This suggests that the index had a bullish bias.

Despite the rally on the far right, the Aroon indicator hasn't shown a bullish bias yet. This is because the price rebounded so quickly that it hasn't made a new high in the last 25 periods (at the time of the screenshot), despite the rally.

The Bottom Line

The Aroon indicator is a technical tool that can help traders identify trends in price changes as well as the strength of those trends. As with any trading tool, traders should understand how they work before applying them in their trading strategies. Rather than using it alone, it's advisable to use the Aroon indicator with other tools, such as the MACD. This helps traders avoid major losses in their trading activities.

Correction—Oct. 22, 2024: This article has been corrected to state that a crossover in which Down crosses above Up may be a signal to sell.