Keeping in mind the need to identify the trend and its strength, the Aroon indicator was developed. The main goal of this technique is to signal to the trader whether a trend exists and whether it is gaining or losing momentum.
How Does Aroon Work?
The indicator consists of two lines, called Aroon Up and Aroon Down. The former measures the strength of the uptrend, while the latter measures the strength of the downtrend.
Thus, the indicator signals the amount of time prices take to reach their highs and lows within a certain period. Aroon displays the results as a percentage, oscillating between 0% and 100%—the higher the number, the stronger the trend.
The Aroon indicator is available in all versions of BlackArrow, and you can plot it on your chart by following these steps:
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Click on the View Menu, then Indicators, and select Aroon.
Interpreting the Indicator
The indicator is primarily used in two ways:
- Movements at the 30 and 70 levels: When Aroon Up is above 70 and Aroon Down is below 30, there is a strong uptrend. The reverse is also true: when Aroon Down moves above 70 and Aroon Up drops below 30, a strong downtrend is in place.
- When both lines move in tandem (especially around 50), it signals consolidation.
- Crossovers: When a crossover occurs between the 30 and 70 lines, the indicator signals a confirmation. For example, if Aroon Up crosses above Aroon Down within this range, an uptrend is confirmed. Although described in trading literature, this application method is rarely used in practice.
Consequently, the Aroon indicator helps identify whether an ongoing trend is in place. This information is critical, as it can directly impact each investor's trading style.
With the proper setup for each trade type (day trading, swing trading, or position trading), the Aroon indicator tends to react to market changes better than many other techniques aiming for the same objective.
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