The Aroon indicator is a powerful technical analysis tool that helps traders identify trend changes and measure trend strength. Developed by Tushar Chande in 1995, the name "Aroon" comes from Sanskrit meaning "dawn's early light," reflecting its ability to spot the beginning of new trends.
What is the Aroon Indicator?
The Aroon indicator consists of two lines that measure the time elapsed since the highest high and lowest low over a specified period. These two components work together to show you when a new trend might be starting and how strong the current trend is.
Key concept: The Aroon indicator measures time, not price. It tells you how recently the highest high or lowest low occurred within your chosen time period (usually 25 periods).
The Two Components: Aroon Up and Aroon Down
Aroon Up
Aroon Up measures the number of periods since the highest high within your lookback period. It ranges from 0 to 100.
- Aroon Up = 100: The highest high occurred today (very bullish)
- Aroon Up = 0: The highest high occurred 25 periods ago (no recent strength)
Aroon Down
Aroon Down measures the number of periods since the lowest low within your lookback period. It also ranges from 0 to 100.
- Aroon Down = 100: The lowest low occurred today (very bearish)
- Aroon Down = 0: The lowest low occurred 25 periods ago (no recent weakness)
How to Calculate the Aroon Indicator
The formulas are straightforward once you understand the concept:
Aroon Calculation
Aroon Up = ((Period - Days Since Highest High) / Period) x 100
Aroon Down = ((Period - Days Since Lowest Low) / Period) x 100
Using the default 25-period setting: If the highest high was 5 days ago:
Aroon Up = ((25 - 5) / 25) x 100 = 80
What is the Aroon Oscillator?
The Aroon Oscillator is a simplified version that combines both lines into one. It is calculated by subtracting Aroon Down from Aroon Up:
Aroon Oscillator = Aroon Up - Aroon Down
- Positive values: Bullish (Aroon Up is greater than Aroon Down)
- Negative values: Bearish (Aroon Down is greater than Aroon Up)
- Near zero: No clear trend or consolidation
How to Read Aroon Signals
Strong Uptrend Signals
- Aroon Up consistently above 70
- Aroon Down consistently below 30
- Aroon Up crosses above Aroon Down
Strong Downtrend Signals
- Aroon Down consistently above 70
- Aroon Up consistently below 30
- Aroon Down crosses above Aroon Up
Consolidation Signals
- Both lines moving together below 50
- Lines crisscrossing frequently
- Aroon Oscillator hovering near zero
Trading Example
Stock XYZ has been in a downtrend. You notice:
- Aroon Up crosses above Aroon Down
- Aroon Up moves above 70
- Aroon Down drops below 30
This suggests a potential trend reversal from bearish to bullish. Traders might look for long entry opportunities, especially if confirmed by price action breaking above resistance.
Best Practices for Using the Aroon Indicator
1. Combine with Price Action
The Aroon indicator works best when combined with support and resistance levels. Look for Aroon signals that align with key price levels for higher probability trades.
2. Use Multiple Timeframes
Check the Aroon indicator on both your trading timeframe and a higher timeframe. When both align, signals tend to be more reliable.
3. Wait for Confirmation
Instead of acting on crossovers immediately, wait for the Aroon Up or Down to reach extreme levels (above 70 or below 30) to confirm the signal.
4. Adjust the Period
The default 25-period setting works well for swing trading. Day traders might use 14 periods, while position traders might prefer 50 periods.
Common Aroon Trading Strategies
Crossover Strategy
- Enter long when Aroon Up crosses above Aroon Down
- Enter short when Aroon Down crosses above Aroon Up
- Use the opposite crossover as your exit signal
Extreme Reading Strategy
- Wait for Aroon Up to reach 100 (new high just made)
- Enter long on pullbacks while Aroon Up stays above 70
- Exit when Aroon Up drops below 50
Limitations of the Aroon Indicator
Like all indicators, the Aroon has some drawbacks:
- Lagging nature: It confirms trends rather than predicting them
- False signals in ranging markets: Frequent crossovers can occur during consolidation
- Single-dimension analysis: It only measures time, not price magnitude
Track Your Technical Indicator Performance
Pro Trader Dashboard helps you track which indicators work best for your trading style. Analyze your Aroon-based trades and see your actual win rate and profitability.
Summary
The Aroon indicator is a unique tool that measures trend strength through time rather than price. By tracking how recently highs and lows occurred, it helps traders identify emerging trends early and stay in trends longer. Combine it with other forms of analysis for best results.
Want to learn about more technical indicators? Check out our guides on the Vortex Indicator or the SuperTrend Indicator.