Aroon From ScratchHi traders!
Today we gonna tell you about one of the most interesting indicators. As you know, trend is based on price action. Everything on the market based on price action, LMAO. Thus, it’s considerably important to define and extract some hidden states, that can play a huge role in trend predicting. Aroon is one of this hidden-state finders.
The Aroon indicator is a technical indicator that is used to identify trend changes in the pric, as well as the strength of that trend. In essence, the indicator measures the time between highs and the time between lows over a time period. The idea is that strong uptrends will regularly see new highs, and strong downtrends will regularly see new lows. The indicator signals when this is happening, and when it isn't.
The indicator consists of the "Aroon up" line, which measures the strength of the uptrend, and the "Aroon down" line, which measures the strength of the downtrend.
Formulas for the Aroon Indicator
Aroon Up(orange)= (x-periods since last high in x period) /x*100 where x – number of periods.
Aroon Down(blue)= (x-periods since last low in x period)/x*100 where x – number of periods.
How to use it?
We use it in two ways: crossovers and parallel state. When Aroon Up and Aroon Down draw a parallel channel, we can make a conclusion that market is choppy and it would be better to avoid entering.
Crossovers can signal entry or exit points. Up crossing above Down can be a signal to buy. Down crossing below Up may be a signal to sell.
When both indicators are below 50 it can signal that the price is consolidating. New highs or lows are not being created. Traders can watch for breakouts as well as the next Aroon crossover to signal which direction price is going.
As for the parameters, we use on 15M timeframe Aroon with the length 10 on 4H. It gives us less signals, but they are very strong. You can tune it in depending on your purposes and goals of strategy.
