The Aroon indicator was developed bearing in mind the need to know trends and their strength. The technique's ultimate goal is to signal the trader if there is a trend and if it is gaining or losing strength.
How does Aroon work?
The indicator is composed of two lines called Aroon Up and Aroon Down. The former seeks to measure the strength’s uptrend while the latter measures the downtrend’s strength.
This way, the indicator signals the time it takes for prices to reach the maximum and minimum values in a given interval. Aroon displays the results as a percentage, oscillating between 0% and 100%, and the higher the number the greater the trend’s strength.
The Aroon indicator is available in the Basic, Standard, and Pro versions of Vector and it’s possible to add it to your graph through the following steps: Right-click the chart, select “Add Indicator” and type "Aroon".
Interpreting the Indicator
The indicator is used in the following ways:
- Movement in the levels of 30 and 70: when Aroon Up is above 7 and Aroon Down below 30, there is a strong upward trend. The analogue is true, when Aroon Down moves to levels above 70 and Aroon Down moves to values below 30, there is a strong downward trend.
- When both lines move similarly (especially around 50), there is a consolidation signalling.
- Crossings: when the lines between 30 and 70 cross, the indicator signals a confirmation. For example, if Aroon Up crosses Aroon Down in that region, the upward trend is confirmed. Although described in the literature, this application method is rarely used in practice.
This way, Aroon helps to identify if there is an ongoing trend. This information is fundamental because it can reflect directly on the operation style of each trader.
With the appropriate adaptation for each type of operation (day trading, swing or position), Aroon tends to react to market changes better than several techniques that seek to achieve the same goal.
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