Aroon & Aroon Oscillator – Technical Analysis Tool for Stock, Futures, & Forex Trading

The Aroon Technical Analysis Indicator determines the direction a stock is moving, up, down or sideways.

Knowing the direction a stock is moving is extremely useful for the technical trader. During periods when prices move up or down, techniques following trends, such as moving averages, are profitable. However, during periods of lateral movement, the following trend techniques work poorly. Likewise, oscillators, such as the stochastic oscillator, work very well during periods when an action is moving sideways, but they behave very poorly when actions tend to up or down

How to interpret the Aroon Indicator

There are two parts to the Aroon Indicator, the Aroon up and the Aroon down. The Aroon indicator ranges from 0 to 100: when the Aroon down indicator is above line 70 and the Aroon up indicator is below 30, then the market is trending down. In contrast, when the Aroon up indicator is above line 70 and the Aroon down indicator is below 30, then the market is tending strongly upwards. Finally, when the Aroon up and Aroon down indicator move to the center line (50), then the market is entering a period of consolidation. The default time period for the Aroon indicator is 25 periods. However, a trader can change the time period to 10 periods for short term trades or 50 periods for long term trades.

The Aroon indicator is the Aroon Oscillator which combines Aroon and Aroon in a single gauge. The Aroon Oscillator is simply calculated by subtracting Aroon down from the Aroon up indicator. To interpret the oscillator, a value above 50 implies a strong trend market and a value below -50 means that the market tends to be lower. Similarity with the ADX Indicator

A similar indicator of technical analysis to determine the trend strength of a stock is the Average Directional Movement Index (ADX). Both the Aroon indicator and the ADX determine the trend of the stock trend. Howerver, the ADX is non-directional, it moves up or not the stock is moving up or down. ADX specifies only the strength of the stock trend. The Aroon indicator moves higher when prices move higher and lower when prices move lower. Thus, the Aroon indicator is a more intuitive indicator than the ADX. In summary, the Aroon Gauge and the Aroon Oscillator are extremely useful tools for stock traders to own; The Aroon indicator helps marketers to determine when a next trend indicator of technical analysis or an indicator of technical oscillator analysis is best suited for a stock trade. The following link will take you to more pictures and description of the Aroon Indicator and Aroon Oscillator

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