Aroon indicator & Aroon Oscillator

What is Aroon Indicator?

Developed by Tushar Chande in 1995, Aroon is an indicator system that can be used to determine whether a stock is trending or not and how strong the trend is. "Aroon" means "Dawn's Early Light" in Sanskrit and Chande choose that name for this indicator since it is designed to reveal the beginning of a new trend.

If the price of a security is rising, the Close for the period will be closer to the end of the period, and vice versa. The Aroon indicator system consists of two lines, 'Aroon (up)' and 'Aroon (down)'. The Aroon indicator shows how much time passed between the highest (up) or lowest (down) Close since the beginning of a period (in percents).

What is Aroon Oscillator?

A separate indicator called the Aroon Oscillator can be constructed by subtracting Aroon (down) from Aroon (up). Since Aroon (up) and Aroon (down) oscillate between 0 and +100, the Aroon Oscillator oscillate between -100 and +100 with zero as the center crossover line.

Caculation of Aroon Indicator

The following formula is used to calculate Aroon indicator. It consists of two lines - Aroon (up) and Aroon (down), and the resulting Aroon Oscillator is the difference between them.

Aroon (up) = ((total_num_of_periods - num_of_periods_since_highest_close) / total_num_of_periods) x 100

Aroon (down) = ((total_num_of_periods - num_of_periods_since_lowest_close) / total_num_of_periods)) x 100

Aroon (oscillator) = Aroon (up) - Aroon (down)

Usage of Aroon Indicator

A separate indicator called the Aroon Oscillator can be constructed by subtracting Aroon(down) from Aroon(up). Since Aroon(up) and Aroon(down) oscillate between 0 and +100, the Aroon Oscillator oscillate between -100 and +100 with zero as the center crossover line.

When Aroon(up) and Aroon(down) are moving together, there is no clear trend (the price is moving sideways, or about to move sideways).

When the Aroon(up) is below 50, it is an indication that the uptrend is losing its momentum, while when the Aroon(down) is below 50, it is an indication that the downtrend is losing its momentum.

When the Aroon(up) or Aroon(down) are above 70, it indicate a strong trend in the same direction, while when the value is below 30, it indicates a trend coming in an opposite direction.

Finally, for the Aroon Oscillator, the positive value indicates an upward trend (or coming trend), and the negative value indicates a downward trend. The higher the absolute value of an oscillator, the stronger is an indication of a trend.