How to Use Aroon Indicator to Supercharge Your Trades

Aroon Indicator is a technical analysis indicator which is used to reveal trends and also helps to understand the probability of trend reversals happening in the financial market. It consists of two lines: The Aroon-Up and Aroon-Down lines. Aroon-Up measures (times) the number of periods required for prices to go up to the new high and Aroon-Down measures (size) the number of low points during this period. Comparing these two lines allows investors to understand the strength of a trending asset and thus provide indications of an expected change in the direction of the trend. Below we shall be discussing the Aroon indicator in detail and the steps above on how to use Aroon Indicator.

What is an Aroon Indicator?

The aroon indicator consists of two lines. A U-line with periods, indicating the number of periods since a High, and a downside-down Y-line with periods indicating the number of periods since a low. It works with 25 periods of data for 25 periods high or low. Moreover, it can be inferred that a greater Aroon Up than Aroon Down demonstrates bullish price action.

The reverse scenario occurs when the Aroon Up is below the Aroon Down, implying a bearish price movement. The movement of the indicator above the moving average shows a bullish trend, while the moving average rising above the indicator shows a bearish trend. Another one of the cases occurs when Aroon Up appears above Aroon Down which may mean a new uptrend is about to take place.

Benefits of Aroon Indicator

1. Trend Identification

Arguably no other trade tool is more helpful than the Aroon Indicator when it comes to trend detection. Trends are measured as the difference between the highest high and the lowest low within a given period to enable one to differentiate between an asset which is in a vertical trend (uptrend or downtrend) and a horizontal trend (ranging phase). It can be irreplaceable for dealers who are trying to coordinate their strategies during the existing market conditions.

2. Early warning signals

The Aroon Indicator could be very helpful in spotting possible trend changes in the early steps. When Aroon up crosses the Aroon down, it indicates the beginning of the new upward trend, and the reverse makes us assume future downtrends. Such signals could allow traders to spot potential market reversals before the full depth of the downturn is reached.

3. Simple Interpretation

While some technical indicators might need complicated calculations or just complicated chart patterns for the analysis, the Aroon Indicator provides a trivial explanation. Traders do understand that the signals are spot on and automatically blend them into their trading system without any accounting or industry experience.

4. Versatility

One of the major advantages of the Aroon Indicator is that it is highly versatile. It can be used for different term frames like intraday charts or for longer timeframes, which allows trading styles and preferences to be adjusted. A further useful aspect of the Aroon Indicator is that this technical trading tool can be applied to a range of assets, such as equities, foreign currencies, commodities and cryptocurrencies.

How to use the Aroon Indicator?

The Aroon indicator is a technical assistance instrument used to identify trends in the market and estimate the strength of those trends. It consists of two lines: The indicator uses the Aroon-Up and Aroon-Down lines to look at the price movement in conjunction. Below we have discussed the process of how to use the Aroon indicator:

Calculation: Aroon-Up and Aroon-Down values get calculated after entering a certain period. Mainly this period is closer to 14. The construction of Aroon-Up is (Number of periods – Number of periods since the highest high / Number of periods ) *100 and the formula for Aroon-Down is (Number of periods – Number of periods since the lowest low / Number of periods) *100.

Interpretation: Aroon-Up going over Aroon-Down predicts a risk of strengthening uptrend, whereas Aroon-Down crossing Aroon-Up predicts the risk of strengthening downtrend. Figures near the 100 mark emphasise that the direction of the trend is strong, whereas numbers in the vicinity of 0 show that the trend direction is weak.

Signals: Traders usually mark selling opportunities when Aroon-Up is below Aroon-Down and buying opportunities when Aroon-Down becomes greater than Aroon-Up. Nevertheless, it should be taken into account that these signals have to be confirmed by additional technical signals or by considering the price action analysis before the actual entry into the trades.

Confirmation: Additionally, make sure that you crosscheck Aroon signals with other indicators and also some analytical techniques to eliminate the risk of false signals. Comparing the Aroon indicator with other techniques for instance will improve the performance of the indicator.

Usage: Traders might use this indicator to identify the trend or to confirm trends along with trend-following strategies. Some dealers keep it as a single analytical tool, while others integrate it into a trading system which includes other tools as well.

Marked by the correct assessment and interpretation of the Aroon indicator, traders get a priceless understanding of market trends and can revise their trade decisions for the better.

Conclusion

The Aroon Indicator provides the traders with the time fraction from the highest high and lowest low to provide information on possible changes in trend and continuation of trends, for which the given period is set. While it could be a very significant signal, it is suggested to use the tool as a part of other technical analysis tools and confirmatory indicators for more reliable trading decisions to be properly made. Undoubtedly, it is equally vital to notice the flaws of this indicator and know its subtleties to maximise this tool for trading strategy. AstraMarket is of great significance when helping newbies understand how to use aroon indicator as it guides the usage of the tool with utmost perfection and clarity.