Today we will look into the Aroon Indicator and Aroon Oscillator. Both were invented by famous technical analyst Tushar Chande and both are available on the IQ Option platform. IQ Option offers many different indicators on its platform. They assist traders in making better trading decisions. Different indicators serve different purposes. Some are more complex than others.
What is Aroon indicator?
The Aroon is an indicator that can be used to identify the trending and ranging market, to catch the beginning of a new trend, and measure its strength.
Setting up the chart
To add any type of indicator to your trading chart, you must click on the indicators icon and then search for what you are interested in. If you start typing the name of the indicator in the search box, it will appear on the screen. The Aroon belongs to the Trend group of indicators. On the other hand, Aroon Oscillator is placed under Momentum indicators. Once you click on the name ‘Aroon' it will be added to your chart.
The Aroon indicator comes with default settings. We advise you to change its period to 25 as this is a period suggested by Tushar Chande.
Aroon Up and Down
The Aroon indicator consists, in fact, of two indicators, Aroon Up indicator and Aroon Down indicator. They are usually plotted together.
The time that has passed from the previous high to a new high during a certain period is measured by Aroon Up. It reaches the value of 100 when the price bar is the highest in the specified number of periods. In the other cases, Aroon Up shows in percentages how long has it been since a new high was formed within a certain period.
The time from the last low in the prices is measured by Aroon Down. It has a value of 100 when the specific price bar is the lowest low during the determined number of periods. If the price bar's low is not the lowest within a certain period, Aroon Down presents the time that has passed from the last low in percentages.
It is possible to catch the likely beginning of the trend with the Aroon indicator. There are few cases when you can assume a new trend is creating.
- Aroon Up intersects Aroon Down from below tells about the possible new uptrend. This and subsequent is referred to as Aroon indicator crossover.
- When Aroon Down passes Aroon Up from below, probably a new downtrend will form.
- A new uptrend is predicted also when Aroon Up nears 100 level. When it moves between values 70 and 100 and Aroon Down stays below 30 for some time.
- A new downtrend may start soon when Aroon Down moves close to 100 level. When Aroon Down lies between 70 and 100 and Aroon Up between 0 and 30.
Moreover, you can tell when the market is ranging or consolidating. It happens when Aroon Up and Aroon Down progress in parallel at more or less the same level. The direction in which they move does not matter.
What is the Aroon Oscillator?
The Aroon Oscillator shows the difference between Aroon Up and Aroon Down. It is calculated by subtracting Aroon Down from Aroon Up.
The Aroon Oscillator appears in a separate window and its default period is 25. The indicator fluctuates around 0 line from the value of -100 up to +100. Positive readings reveal upward movement in the market and negative readings downward movement.
The Aroon Oscillator reaches +100 when Aroon Up is 100 and Aroon Down 0. Analogically, it reaches -100 when Aroon Up is 0 and Aroon Down 100. Thus, only a strong movement can force the oscillator to move to extreme values.
Generally, positive readings give information that Aroon Up is larger than Aroon Down and this means that new highs are formed on the price chart. On contrary, negative readings mean Aroon Down is larger than Aroon Up so new lows are recorded in the prices recently.
Below, you can compare both indicators, Aroon and Aroon Oscillator added to the chart.
Using the Aroon Oscillator in trading
The Aroon Oscillator is most popularly used to catch the trend direction. The uptrend is revealed when the indicator stays in a positive area and the downtrend when it falls below 0.
You can adjust its period to the timeframe of the chart you are using. 25 or shorter periods will be good for short-term traders. For position traders, the period of 75 would be more appropriate. Remember, however, that the larger period the larger delay in the indicator displays.
It is possible to identify strong moves with the Aroon Oscillator but you should not assume you can catch tops and bottoms with it.
You can wait for signals at the levels -90 and +90. When the Aroon Oscillator stays above +90 it reveals a strong upward movement as Aroon Up has to be between 90 and 100 and Aroon Down between 0 and 10. A strong downward movement can be identified when the Aroon Oscillator stays below -90 because it means Aroon Up is between 0 and 10 and Aroon Down is between 90 and 100. Consider the chart below.
The Aroon indicator consists of two, Aroon Up and Aroon Down. They measure the time that has passed from the most recent highs or lows. You can identify the trending and ranging markets with it.
The Aroon Oscillator joins Aroon Up and Aroon Down in one. It shows which of them is stronger. You can catch the strong bullish and bearish movements with it.
Use an extra tool such as chart patterns or another indicator to receive trading signals. Check in the demo account how you like trading with the Aroon indicators. Have you already traded using the Aroon indicator? Share your thoughts with us in the comments below the article.
Wish you an enjoyable experience!
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