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The Aroon Indicator
The Aroon indicator is a technical analysis tool that was developed by Tushar Chande in 1995. It is used to measure the strength of a trend and to indicate whether a stock or other asset is trending or moving sideways. The indicator consists of two lines, the Aroon Up and Aroon Down, which are calculated based on the number of periods since the highest high and the lowest low, respectively.
The Aroon Up line is calculated by dividing the number of periods since the highest high by the total number of periods. The Aroon Down line is calculated in a similar way, but based on the number of periods since the lowest low. Both lines oscillate between 0 and 100, with high values indicating a strong trend and low values indicating a lack of trend.
When the Aroon Up line (green) is above the Aroon Down line (red), it is an indication of an uptrend, while when the Aroon Down line is above the Aroon Up line, it is an indication of a downtrend.
When the two lines are close together, it is an indication of a lack of trend or a sideways market.
One of the key benefits of the Aroon indicator is that it can help traders identify when a trend is likely to change. For example, if the Aroon Up line is declining while the Aroon Down line is rising, it is an indication that an uptrend is weakening and that a downtrend may be forming. Similarly, if the Aroon Down line is declining while the Aroon Up line is rising, it is an indication that a downtrend is weakening and that an uptrend may be forming.
Another way to use the Aroon indicator is by looking at the cross over of two lines. When Aroon up line crosses above Aroon Down line, it signifies that a Bullish trend is established. Conversely, when Aroon Down line crosses above Aroon Up line, it signifies that a bearish trend is established.
Traders can also use the Aroon indicator in combination with other technical analysis tools to confirm trading signals. For example, a bullish Aroon signal in combination with a bullish moving average crossover can provide a more robust buy signal.
In summary, the Aroon indicator is a powerful technical analysis tool that can help traders identify the strength of a trend and predict when a trend is likely to change. It is relatively easy to use, and can be used in combination with other technical analysis tools to improve trading results