The Aroon Indicator: Up? Down? Or Sideways?
The Aroon Indicator, also referred to as “Aroon Up/Down,” is a range-bound technical indicator developed by technical analyst and author Tushar Chande. “Aroon,” which is Sanskrit for “Dawn’s Early Light,” demonstrates Chande’s belief further in its ability to both determine and confirm trends. The Aroon Indicator has two lines, each with different measurements. These lines are referred to as “Aroon-Up” and “Aroon-Down.”
Aroon-Up displays how long it has been since price action has recorded a new high within a specific period (Tradingview default is 14.) If the current candle’s high is the highest of the last 14 candles, then the Aroon-Up value will display as 100. Essentially, if every candle keeps going higher and higher, the Aroon-Up will remain at 100 under a lower candle forms. Once a lower candle forms, the indicator displays a percent value meant to indicate the time since a new high occurred (within the 14 candle period.)
Aroon-Down is obviously the opposite. It displays how long it has been since price action has recorded a new low within this same specific period. If the current candle’s low is the lowest of the last 14 candles, then the Aroon-Down value will display as 100. If every candle keeps going lower and lower, the Aroon-Down will remain at 100. Once a higher candle forms, the indicator displays a percent value. This indicates the time since a new low occurred (within the 14 candle period.)
The basic Aroon Indicator is displayed below on the CMG daily chart (with the 0, 30, 70, and 100 levels labeled) with Aroon-Up shown in green and Aroon-Down shown in red.
Aroon Indicator Crossovers
If Aroon-Up crosses above Aroon-Down to the upside, it signals the beginning of a potential uptrend. When the Aroon-Up line hits 100, price action is making new highs. If Aroon-Up then remains stable between 70 – 100, while Aroon-Down remains between 0 – 30, it signals confirmation of an uptrend.
Similarly, if Aroon-Down crosses above Aroon-Up to the upside, it signals the beginning of a potential downtrend. If Aroon-Down hits 100, price action is making new lows. If Aroon-Down remains stable between 70 – 100, while Aroon-Up remains between 0 – 30, it signals confirmation of a downtrend.
When Aroon-Up and Aroon-Down move in parallel (horizontal, sloping up or down) with each other at roughly the same level, then price is range trading or consolidating.
An example below on NFLX:
Another, more depth look at an hourly chart of AAPL shown below:
The Aroon indicator is a good visual display of price action that is easy to interpret. If understood and applied correctly, monitoring the indicator can help you determine the price’s direction and momentum. As always, you should never rely on any one signal to enter or exit a trade. Using the Aroon indicator in tandem with other technical indicators and chart patterns can dramatically increase the odds of making a profitable trade.
Find more informational articles on the TraderMentality blog.