Aroon Indicator

Definition

The Aroon indicator measures how recently price made new highs or lows to identify trend direction and strength. It consists of two lines:
* Aroon Up — measures time since the most recent high.
* Aroon Down — measures time since the most recent low.

Readings range from 0 to 100. Values near 100 mean a recent high/low; values near 0 mean it has been a long time since a high/low.

Key points

• Aroon Up above Aroon Down suggests bullish conditions; the reverse suggests bearish conditions.
• Crossovers can signal trend changes: Up crossing above Down is bullish (buy); Down crossing above Up is bearish (sell).
• Both lines below 50 commonly indicate consolidation (no recent highs or lows).
• Default lookback is 25 periods (commonly days), but the period can be adjusted for responsiveness.

Formula and how to calculate

Let n be the lookback period (n = 25 is typical).

Aroon Up = ((n − Periods Since n‑period High) / n) × 100
Aroon Down = ((n − Periods Since n‑period Low) / n) × 100

Steps:
1. Choose n (often 25).
2. Count periods since the most recent n‑period high and n‑period low.
3. Plug those counts into the formulas above to get values between 0 and 100.

Interpretation

• Aroon Up ≈ 100 and Aroon Down ≈ 0 → strong uptrend (recent highs, no recent lows).
• Aroon Down ≈ 100 and Aroon Up ≈ 0 → strong downtrend (recent lows, no recent highs).
• Aroon values above 50 mean a high/low occurred within roughly the last n/2 periods; below 50 means it was earlier than that.
• Watch for crossovers and confirm with price action or other indicators before trading. Breakouts followed by confirming Aroon movement strengthen signals.

Limitations

• Lagging: the indicator looks backward and can signal after a large move has already happened.
• False signals: crossovers will occur even in flat markets and can produce poor entries/exits.
• Magnitude blind: Aroon tracks timing of highs/lows, not the size of price moves.
• Should not be used alone—combine with price analysis and other indicators (e.g., volume, MACD).

Aroon vs. similar indicators

• Directional Movement Index (DMI): DMI (by Wilder) measures price movement magnitude between highs/lows and includes +DI/−DI lines and ADX for trend strength. Aroon focuses on time since highs/lows rather than price differences.
• MACD: MACD measures momentum and changes in trend via moving average convergence/divergence. Aroon measures how recently highs/lows occurred. They provide complementary information—MACD for momentum, Aroon for timing of extremes.

Practical tips

• Default n = 25 is a good starting point; use a shorter n for more sensitivity or a longer n for smoother signals.
• Confirm Aroon crossovers with price structure (support/resistance), volume, or a momentum indicator.
• Use Aroon to detect beginning/ending trends and to confirm breakouts rather than as an isolated entry/exit trigger.

Example scenarios (conceptual)

• Strong uptrend: Aroon Up near 100, Aroon Down near 0 — expect continuation until Down rises or a crossover occurs.
• Reversal signal: Aroon Down crosses above Aroon Up — potential start of a downtrend, but verify with price and other indicators.
• Fast rebound without new highs: price rallies quickly but Aroon Up remains low because a new high within the lookback period has not yet formed — Aroon can lag during rapid moves.

Conclusion

The Aroon indicator is a simple, time‑based tool for spotting trend presence, strength, and potential changes by measuring how recently highs and lows occurred. It is most effective when used with price analysis and other technical indicators to reduce false signals and improve timing.