# How to Use Aroon Indicator in Trading

The Forex Aroon Oscillator is a fresh technical tool and that is why it is still not included in most trading platforms by default. However, this indicator is very interesting from the perspective of its calculations and can help a trader a lot in predicting further price movement.

Before reading the article and writing your questions in the comments section, I recommend to watch this video. It’s not long but covers the biggest part of questions on the topic.

The Aroon Oscillator was invented by the famous Indian trader Tushar Chande, the creator of the hybrid Stochastic tool and the RAVI indicator.

The word Aroon means the early light of the dawn in Sanskrit. The very name itself makes us think that the indicator will provide us with the early signals for making trading decisions.

Table of Contents

## Description of the Aroon Oscillator

The Aroon Oscillator consists of two lines:

• Aroon up (the blue one by default);
• Arron down (the red one by default).

These multicolored lines are volatile between 0 and 100 like any other indicators of the oscillator type.

We will find only one important parameter AroonPeriod in the settings that we have to fill with a certain digital value. The other two parameters are the setting of the notification by sound or by email (in case a line gets above the other one).

False” – notification is off. “True” – notification is on.

Of course, you can change the color of the lines by your money in the settings.

What do these lines mean? What do they show us? Let’s get into it.

## Calculation method of the Aroon Oscillator lines

The Aroon Up line counts the amount of the periods (days or hours depending on the selected timeframe) that have passed since the highest price occurred on a 100-point scale. Consequently, the Aroon Down line counts the amount of the periods about the lowest price.

• Aroon up = ((Number of periods minus Days Since N-day High) / N) x 100%;
• Aroon down = ((Number of periods minus Days Since N-day Low) / N) x 100%.

For instance, imagine that we have put the Aroon Indicator over the day chart and set the period to 10 days. If the price of a currency pair is reaching today its highest value over the period, then the Aroon Up Indicator will show the value of 100:

((10-0)/10)100 = 100.

So the maxima is 100 percent value of the highest price over a certain period. If the extremum occurred 5 days ago, then we should use the formula ((10-5)/10)100 = 50. We should calculate the values for the second line the same way.

In this case, if the lowest price hasn’t updated but keeps moving upwards then the Aroon Down line will be 0. For instance, let’s say that the last local Low was 9 days ago, then the Aroon Down values are ((10-9)/10)100 = 10.

• As you may have guessed, if the Aroon Up line is always near the highest values and the Aroon Down line tends to zero, the buyers are winning on the market.
• If the Aroon Down line is always near the highest values while the Aroon Up line is at the bottom of a chart, the sellers are winning on the market.

## The Levels of the Aroon Indicator

The traders usually mark the levels of 70, 50 and 30 as the key ones in the Aroon Indicator. These critical levels contain a lot of information about the market situation.

If a line is always above the 70% level while the other one cannot reach the 30% level from the bottom and tends to the 0% level, then there is a strong trend on the market.

## What would a trader learn from that?

If the market is under the bulls’ control who keeps pushing the price upwards, then the Aroon Up line rarely leaves the near-100% values and the trend updates its maxima so quickly that each new candlestick brings a new High. The Aroon Down line is near the lowest values so the bears are weak and can’t fight back.

And on the contrary, when the Aroon Down line doesn’t leave the zone of the 100% values and the Aroon Up line is at the bottom of the chart, then the bears are reigning on the market and the bulls are not strong enough to fight them.

If the red and the blue lines of the indicator cross, then it may be a signal of a new trend or the market comes out of the flat. We may consider the values of the lines the following way:

• Aroon Up line above 70% – a strong bullish trend;
• Aroon Up line above 50% but below 70% – an uptrend is getting stronger.
• Aroon Up line below 50% but above 30% – a trend is getting weak but still good enough;
• Aroon Up line below 30% – the buyers have lost the initiative;
• Aroon Down line above 70% – the sellers control the market;
• Aroon Down line above 50% but below 70% – the bulls are getting stronger and this is a sign of an upcoming downtrend.
• Aroon Down line below 50% but above 30% – the bullish trend is getting weak but the buyers fail to fully take the lead;
• Aroon Down line below 30% – the sellers have lost the initiative.

Evaluate the indicator lines’ values about each other to have a better understanding of the market situation.

## Adjusting the AroonPerion parameter

The default indicator value is set at 14. If you increase the calculation period, the indicator will be able to identify the larger trend areas.

The traders often use the value of 25 (periods).

The traders should choose the best number of the periods by analyzing the history and picking the values upon practical consideration.

If you pick a short 14-days period, the indicator will not provide you with information about the global trend on the dips but will work with the small trend areas perfectly.

If you set the period to 30 days, you may be able to trade long trends but you will skip the small market movements because the indicator won’t have time to react to them.

I think you will have a better understanding if you take a look at the examples.

Pic #3. EUR/USD. The day chart. Example of the trend area determined by

The indicator generates a signal about the trend ending at each retracement.

Example of the same trend area determined by the Aroon 30 Indicator. It works with the larger trend area because of the “slowed” parameters. If you enter the market by the signal of the red and blue lines and close the positions by the reversal signal, you will get a 2,900-point profit.

You may pick any timeframe for applying the tool. However, you should remember that the higher it is, the more accurate signals you will get from the Aroon Oscillator.

As you may have noticed, the description of the Aroon Indicator is rather short since the tool is very simple in terms of calculating its values and very efficient.

## Applying the Aroon Indicator in Trading

You can download the Aroon Indicator for the MT4 trading platform or find it in the Libertex trading platform:

If you know how to create the Aroon Oscillator lines, you can use it as a trading tool for determining the direction and strength of a dominating trend. It can also help you to determine the moment when the price leaves the consolidation area.

Depending on the trader’s trading system, the Aroon Indicator may become its main tool or an additional filter. Of course, any indicator should be used in conjunction with other tools.

I think the following examples will show you how this tool may be useful in trading.

## The Trend Filter

If we use the Aroon Oscillator over the chart as a trend filter, we will get a perfect aid for determining a trend and its potential strength.

• If an Aroon line is between the levels of 70% and 100%, then there is a strong trend on the market and you should trade following the trend’s direction. For instance, you may trade on the dips.
• If an Aroon line is between 50% and 70%, then you may expect the trend to keep going.

You should consider the Aroon Up and Down lines about each other since if one of a line is getting high and the other is getting low, then there is a new trend coming to the market.

## Looking for the Consolidation Area Closing

If the market has been flat and the price simply “stuck” in one place for a long time, and then the indicator lines have crossed and moved to different angles, it would mean that the consolidation area is broken and a new trend is beginning.

In such cases, you should trade strictly towards the breakout using additional tools for analysis.

## The Aroon Trading Strategies

The Aroon Indicator is a good choice for any trading strategy based on following the global trend.

You may use the Aroon Indicator to align with any other indicators and create your trading strategy basing on it.

The day chart. Example of the market entry made to trade following the retracement trend. The trend is determined by the Aroon 30 Indicator and the end of the retracement is determined by the Stochastic Indicator (5,3,3).

If you use the Aroon Oscillator, you need to complete the signals instead of duplicating them. You don’t need to put several indicators on the chart to determine a trend. The Aroon Indicator can determine the dominating trend on its own very well. You should better add the oscillators as described above or the volume indicators.

## Pluses and Minuses of the Forex Aroon Indicator

Due to the non-standard way of calculating the readings, the Aroon Indicator can be used to determine not only the direction but also the strength of a trend. It is a rare and extremely useful combination. Moreover, the indicator can also be used for determining the end of the flat market zones.

## Conclusion

The Aroon indicator is of no doubt a useful tool of technical analysis. The most important thing is to apply it correctly to your trading strategy. You should not count only on its readings or skip filtering them.

When you have understood the essence of the indicator and learned how to apply its readings in practice, you will get a powerful and reliable aid. However, before you start using it in real-time, you need to analyze it all over the historical data.

#### 7 COMMENTS

1. Studied over 3000 indicators last 35 years. This is the best explanation of how to use the Aroon that I’ve come across. Like your methodology. Thanks for the info.

2. i personally use the aroon all the time , ,if possible can you do a video on a few time indicators like fib time or Belkhayate Timing strategies ?

3. thanks again, putting the spotlight on what and how is the aroon indicator.

4. I’ve looked at the AROON. I like it because of its sharp signals rather than curved oscillations.