Aroon indicator: what it is and how to use it

The Aroon indicator stands out among trend follower type indicators, whose task is to determine the price trend of an asset. Like almost all technical analysis tools, it is well suited for the cryptocurrency market, although it was not originally created for it.

The Aroon – indicator is one of the new ones: it was developed in 1995 by Tushar Chande, creator of other important indicators such as the Chande Momentum Oscillator (CMO) or the Dynamic Average of Variable Index (VIDYA). He has also produced an important bibliography with numerous publications and is still active in the analyst community.

Features of the Aroon indicator

This is a technical indicator that is used to determine the price trend and related changes, as well as the strength of the current trend.

So to say, it has nothing original or different from other indicators, but Chande uses a different calculation system to get the result compared to the others.

It is a technical indicator that is used to determine the price trend and related changes, as well as the strength of the current trend.

The basic idea is that a strong uptrend should regularly make new highs. Whereas a strong downtrend will regularly show new lows. It also measures the time between the highs and lows of an asset in a given time frame.

Indicator formula

The indicator consists of an Aroon up line, which measures the strength of a bullish trend, and an Aroon down line, which measures the strength of a bearish trend. Both fluctuate within a fixed index ranging from 0 to 100.

The formula for calculating the two lines is quite simple and is based on tracking the default maximum and minimum prices over 25 periods and the time taken to reach them.

• Aroon Up = ((25 – number of sessions since the last maximum over 25 periods)/25)x100
• Aroon Down = ((25 – number of sessions since the last low for 25 periods)/25)x100

Based on this, Aroon Up will only reach a value of 100 if the maximum price was reached in the last session. Instead, it will reach a value of zero if the maximum was reached 25 periods ago.

Conversely, AroonDonw will only reach a value of 100 if the minimum price was reached in the last session. Instead, it will reach a value of zero if the minimum was reached 25 periods ago.