Aroon Oscillator
Tue, Apr 15The Aroon Oscillator assesses the strength of a trend by calculating the difference between Aroon Up and Aroon Down. Created by Tushar Chande in 1995, the Aroon indicator system helps identify whether the price is trending and the intensity of that trend.
The term “Aroon” translates to “Dawn’s Early Light” in Sanskrit, a name chosen by Chande to signify the indicator's purpose of uncovering the onset of a new trend.
The Aroon Oscillator fluctuates between -100 and +100, with zero acting as the midpoint. It indicates an uptrend when moving towards the upper limit and a downtrend when approaching the lower limit. The closer the Aroon Oscillator value is to either extreme, the stronger the trend becomes.
This oscillator is represented as a single line, defined as the difference between Aroon Up and Aroon Down. All three components utilize a single parameter, which is the number of time periods for the calculation.
Since both Aroon Up and Aroon Down range from 0 to +100, the Aroon Oscillator spans from -100 to +100, with zero serving as the crossover point.
Aroon Up for a specific time period is calculated by determining the percentage of time that elapsed from the start of the period to when the highest closing price occurred. If the price reaches new highs during the period, Aroon Up will be 100. Conversely, if the price declines every day throughout the period, Aroon Up will be zero.
Aroon Down is calculated in a similar but opposite manner, focusing on new lows instead of new highs.
When both Aroon Up and Aroon Down are decreasing closely together, it indicates a consolidation phase, suggesting that no strong trend is present.
If Aroon Up falls below 50, it signifies that the current trend has lost its upward momentum.
When Aroon Down dips below 50, it indicates that the current downtrend has lost its momentum.
Values exceeding 70 suggest a strong trend in the same direction as indicated by Aroon (up or down). Conversely, values below 30 indicate a strong trend in the opposite direction.
The Aroon Oscillator indicates an upward trend when it is above zero and a downward trend when it falls below zero.
The further the oscillator is from the zero line, the stronger the trend.
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