Aroon Oscillator was 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. Chande used this name because the indicators are designed to reveal the beginning of a new trend. The Aroon Indicator system consists of three lines: Aroon Up, Aroon Down and the Aroon Oscillator which reflects the difference between the two.
The default value for Aroon is 25-days. 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. Aroon Up/Down is lower bound to zero and upper bound to 100. A Buy signal is generated when Aroon up is above 50 and Aroon low is below 30. A sell is generated when Aroon up is below 30, and Aroon down is above 50.
“Aroon” is a Sanskrit word meaning “dawn’s early light”. Aroon up and Aroon Down indicators signal the start of a new trend.
TRADING SIGNALS FOR THE AROON OSCILLATOR:
- Above zero signals an uptrend.
- Below zero indicates a down trend.
- The farther away Aroon Oscillator is from the zero line, the stronger the trend.