Technical Indicators
Aroon & Aroon Oscillator
Developed by Tushar Chande in 1995, Aroon is an indicator system that can be used
to determine whether stocks are in a trend or not, as well as the strength of that trend.
Aroon means "the first light of dawn" in Sanskrit. Chande chose this name for this indicator
because it is designed to indicate the beginning of a new trend.
Calculation Method
This indicator system consists of two lines, Aroon(up) and Aroon(down), ranging from 0 to 100. The calculations are performed over a given time period.
Aroon(up) represents the percentage of time that has elapsed since the highest value of this period.
- When the price reaches a new high at the end of the period, Aroon(down) is therefore at 100 and indicates a strong uptrend.
- When the price has not reached a new high over the period, Aroon(up) is at zero, meaning that the uptrend has lost its strength.
Conversely, Aroon(down) represents the percentage of time that has elapsed since the lowest value of this period.
- When the price reaches a new low at the end of the period, Aroon(down) is therefore at 100 and indicates a downtrend.
- When the price has not reached a new low over the period, Aroon(down) is at zero, meaning that the downtrend is no longer in effect.
A third indicator called the Aroon oscillator is obtained by subtracting Aroon(down) from Aroon(up).
Since Aroon(up) and Aroon(down) oscillate between 0 and +100, the Aroon oscillator oscillates between -100 and +100 with
zero as the crossing line.
Example
Interpretation
A strong uptrend is detected when Aroon(up) fluctuates between levels 70 and 100 while Aroon(down) fluctuates between levels 0 and 30.Alternatively, a strong downtrend is detected when Aroon(down) fluctuates between levels 70 and 100 while Aroon(up) fluctuates between levels 0 and 30.
A buy signal may be triggered when the Aroon oscillator crosses the zero line from below. Conversely, a sell signal may be triggered when the Aroon oscillator crosses the zero line from above.