What is an Aroon oscillator?
Aroon oscillators are indicators that follow trends. They use the Aroon up and Aroon down, also known as the Aroon indicator aspects, when gauging a recent trend’s strength and its tendency to continue. There is an uptrend when the reading is more than zero. On the other hand, there is a downtrend if the reading is below zero. In short, traders should be wary when the reading goes more or less than zero. Also, a strong price move signal if the reading above 50 or below -50.
Tell me more about the Aroon oscillator!
In 1995, Tushar Chande created the Aroon. It is a system that determines whether there is a price trend. If there is, it also determines the strength of this price trend. The Aroon oscillator can distinguish a trend’s power with the difference between the Aroon up and Aroon down.
The oscillation is somewhere between +100 and -100 with a zero centerline. If the movement is upward, then it is an upward signal, and if the movement is going below the limit, then it is a downward signal. As the Aroon value moves closer to the extremes, the trend becomes stronger.
Did you know?
If you wonder what the term Aroon means, it is a Sanskrit word that means dawn’s early light. Chande is also the one to name it as it lets people know when there is a new trend.
If there is still confusion
Let us think of the Aroon oscillator as a single line. The thing the defines it is the difference between the Aroon up and Aroon down. These three have their parameters. And when we say parameter, we refer to how many time periods to be used when calculating.
The Aroon up and Aroon down
When we calculate the Aroon up for a specific time frame, we first evaluate how much time has elapsed between the time period’s beginning and the closing price’s highest point in that time period. It is always expressed in percent.
The arrow down has the same concept; it is just that it goes the opposite way since it focuses on the low points and not the high points.
So, the Aroon up is 100 if the price set new highs for that period and Aroon down is zero if the price declines every day in that period.
To explain further
Let us elaborate more on some details about the Aroon oscillator in this given enumeration below:
- The consolidation. There is an upcoming consolidation phase if the Aroon up and Aroon down are declining closer to the proximity. It means that there is no strong visible trend.
- Upward momentum. The recent trend strayed away from the upward moment if the Aroon up declines below 50.
- Downward momentum. The recent completely lost its momentum if the Aroon down declines lower than 50.
- The direction of the trend. If the value is more than 70, we can say that there must be a strong trend in the same direction as the upcoming Aroon up or down. There is also an indication of a strong trend in the opposite direction approaching when the value is below 30.
- A new trend. There is an upcoming upward trend if the value is above zero, while a downward trend is approaching if the value declines lower than zero.
- How strong is the trend? It is now evident that as the oscillator moves farther from the zero line, the trend gets more robust.