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Aroon Indicator was created by Tushar Chande in 1995. It is used to identify the prevailing trend on the market and the probability of changing the trend. Similar to ADX, it consist of two main parts - Aroon Up (the strength of an Uptrend) and Aroon Down (the strength of an Downtrend).
The Aroon indicator formula is as follows:
Aroon Up = [(Ptotal – PHC)/(Ptotal)] * 100
Aroon Down = [(Ptotal – PLC)/(Ptotal)]*100
Ptotal = Number of periods during which the calculation is done
PHC = Number of periods since the Highest Close was achieved
PLC = Number of periods since the Lowest Close was achieved
The Aroon indicator values moves between 0 and 100. The values near 100 indicate very strong trend, while values near 0 indicate very weak trend). If the Aroon Up value is 100 points, it means the asset has just achieved new High during the period in calculation. The same stands for Aroon Down. If it shows 100 points, it means the new Low has been just achieved. Next values in these indicators are than percentual decreased according to the fact how many periods passed since the Highest/Lowest value had been achieved. Every next day, when the new High/Low is not achived, the Aroon indicator is percentual lowered by these percentage: (1/number of periods)*100.
How to use the Aroon indicator:
Aroon is used to identify the prevailing trend on the market, so the traders can estimate the right moments of buying or selling the assets. The buy moment begins when the Aroon Up crosses Aroon Down upwards (Aroon Up rises, Aroon Down falls). It means that the Uptrend streghtens, while the Downtrend weakens. Traders sell during the opposite situation - Aroon Down rises, Aroon Up falls.
Aroon Oscillator is the difference between Aroon Up and Aroon Down.
Aroon Oscillator = Aroon Up – Aroon Down
If the Aroon Oscillator is above the Zero line, it means the Uptrend prevails. If the actual value of the Aroon Oscillator is bellow the Zero line, the Downtrend prevails. Aroon oscillator, unlike the Aroon Up and Aroon Down, moves between -100 and +100 values.
In the end: Please note, that we use 2 different expressions. If we talk about the Aroon Indicator, we mean the Aroon Up and Aroon Down indicators. Their value varies between 0 and +100 and we follow their crossings to make some trades.
When we talk about Aroon Oscillator, we mean (Aroon Up – Aroon Down). Its value oscillates around 0 and its limits are between -100 (if the Aroon Down prevails) and +100 (if the Aroon Up is dominating). Aroon Oscillator exclusively is used to identify the prevailing trend on the market and its strength.
If you are interested in a deeper study of this technical indicator and prefer ready to serve solutions, this may be of interest to you. There you can find all the available indicators in Excel file for download.
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