The Aroon oscillator is a technical indicator used to measure whether a security is in a trend, and more specifically if the price is hitting new highs or lows over the calculation period (typically 25).
When the Aroon Up crosses above the Aroon Down, that is the first sign of a possible trend change. If the Aroon Up hits 100 and stays relatively close to that level while the Aroon Down stays near zero, that is positive confirmation of an uptrend.
The reverse is also true. If Aroon Down crosses above Aroon Up and stays near 100, this indicates that the downtrend is in force.
Facts About Aroon indicator
1. The Aroon indicator was developed by Tushar Chande in 1995. The word "Aroon" is derived from the Sanskrit word "arun," which means "dawn" or "early light." Chande chose this name to represent the indicator's ability to identify the beginning of a new trend.
2. The Aroon indicator can be applied to various financial instruments and timeframes, including stocks, commodities, forex, and cryptocurrencies. Traders and investors use it across different markets to gain insights into price trends and potential trading opportunities.
3. In addition to the Aroon Up and Aroon Down lines, some versions of the Aroon indicator also include a third line called the Aroon Oscillator. The Aroon Oscillator is calculated by subtracting Aroon Down from Aroon Up and can provide further information about the strength and momentum of a trend.
4. The Aroon indicator is considered a leading indicator, as it attempts to predict future price movements rather than relying on historical data. It is particularly useful in trending markets, but may produce less reliable signals in sideways or range-bound markets.
5. The Aroon indicator is often used in conjunction with other technical analysis tools and indicators to confirm or validate trading signals. Commonly paired indicators include moving averages, the Relative Strength Index (RSI), and Bollinger Bands, among others.
6. While the Aroon indicator is widely used, it is important for traders and investors to remember that no indicator is infallible. It is always recommended to use the Aroon indicator as part of a comprehensive trading strategy and to consider other factors such as market conditions, fundamental analysis, and risk management.
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