What Are the Aroon Indicators?
Developed by Tushar Chande in 1995, Aroon is an indicator system that determines whether a stock is trending or not and how strong the trend is. “Aroon” means “Dawn’s Early Light” in Sanskrit. Chande chose this name because the indicators are designed to reveal the beginning of a new trend. The Aroon indicators measure the number of periods since price recorded an x-day high or low. There are two separate indicators: Aroon-Up and Aroon-Down. A 25-day Aroon-Up measures the number of days since a 25-day high. A 25-day Aroon-Down measures the number of days since a 25-day low. In this sense, the Aroon indicators are quite different from typical momentum oscillators, which focus on price relative to time. Aroon is unique because it focuses on time relative to price. Chartists can use the Aroon indicators to spot emerging trends, identify consolidations, define correction periods and anticipate reversals.
How To Calculate the Aroon Indicators
The Aroon indicators are shown in percentage terms and fluctuate between 0 and 100. Aroon-Up is based on price highs, while Aroon-Down is based on price lows. These two indicators are plotted side-by-side for easy comparison. The default parameter setting in SharpCharts is 25 and the example below is based on 25 days.Copy
Aroon-Up = ((25 - Days Since 25-day High)/25) x 100
Aroon-Down = ((25 - Days Since 25-day Low)/25) x 100
Aroon – Chart 1
As more time passes between a new high or low, Aroon decreases. The cutoff point is 50. On a daily chart, a reading of precisely 50 is not achievable because 12.5 days is the exact midway, but it is conceivable with other durations. On daily charts, Aroon is either above 50 (52) or below 50 (48). If the reading is more than 50, it indicates that a new high or low was reached within the previous 12 days. The look-back period’s most recent half is this one. In the recent 13 days or more, a new high or low was recorded if the reading is less than 50 {(25-13)/25 x 100 = 48)}.
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