Aroon Indicator Technical Analysis & Aroon Indicator Signals
Created by Tushar Chande
This stock indicator is used to determine if a financial instrument is trending or not.
It is also used to reflect how strong the market trend is.
It is also used to identify the beginning of a market trend, thus its name, which means morning or dawn.
This stock indicator has 2 lines:
- Aroon UP
- Aroon DOWN
Aroon UP
Percentage of time between the start of a time period and the highest point that stock price has reached during that period.
If stock price sets a new high, Aroon UP will be 100 - for each new high it will stay at 100. However, if stock price moves down by a certain percentage, then that percentage is subtracted from the 100 & Aroon UP starts to move down. This means that if Aroon UP stays at 100 then price is making new highs but when it begins to move down then price isn't making new highs.
If however stock price is making new lows for a particular stock price period then Aroon UP will be at zero
Calculation
Aroon UP is a percentage of time between price period and highest point.
If you use Ten price periods for the calculation:
Example 1: Highest stock price was 1 day ago
Then if the highest point was yesterday, i.e. 1 day before then
10 price periods minus 1 day= 9
9/10 in % terms = 90
Aroon UP will be at 90
Example 2: Highest stock price was 5 days ago
If the highest point was 5 days ago then
10 price periods minus 5 = 5
5/10 in % = 50
Aroon UP will be at 50
Aroon DOWN
This is calculated the same way as Aroon UP but this time using the lowest point instead of the highest point.
When a new low is set Aroon DOWN is at 100 & when a new high is set it will move to zero.
Technical Analysis & Generating Signals
This stock indicator uses the 50% level to measure momentum of the trend.
Buy Trading Signal and exit signal
Aroon UP above 50 is a trading buy signal
Aroon UP dipping below 50 level is an exit trading signal if you had opened a buy trade.
Sell Signal & exit signal
Aroon DOWN below 50 is a trading sell signal.
Aroon DOWN moving above 50 level is an exit trading signal if you had opened a sell indices trade.
Buy & Sell Trading Signals
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