Name, Sometimes Called:
Aroon Up, Aroon Down, Aroon Oscillator.
Also see Average Directional Movement
Indicator (ADX).
Brief Description:
Aroon consists of three associated leading trend indicators:
two lines, Aroon(up) and Aroon(down), and Aroon(oscillator), which
is the difference of the two.
A positive development occurs when Aroon(up) crosses over Aroon(down)
or when Aroon(oscillator) exceeds 30. That is, when Aroon(up) x+
Aroon(down) or when Aroon(osc) x+ 30. This indicator is no longer
positive when Aroon(up) x- Aroon(down) or when Aroon(osc) x- 0.
Definitions, Formulas:
Aroon(up) = 100 x ( ( n – H ) / n
)
Aroon(down) = 100 x ( ( n – L ) / n )
Aroon(oscillator) = Aroon(up) – Aroon(down)
where
n = the number of periods to be tested
H = is the number of periods since the highest high during the
past n periods
L = is the number of periods since the lowest low during the past
n periods
We use n=21.
The ratios calculated
in Aroon(up): ( n – H ) / n
in Aroon(down): ( n – L ) / n
will always be between zero and one. So to create a range between
zero and 100, each ratio is multiplied by 100.
Since the Aroon(oscillator) is the difference between Aroon(up)
and Aroon(down), it can range between +100 and –100.
Some discussion of Aroon
Aroon(up)
< 30 the downward trend may be dominant
< 50 then the upward trend has low momentum
> 70 then the upward trend has a strong momentum
Aroon(down)
< 30 the upward trend may be dominant
< 50 then the downward trend has low momentum
> 70 then the downward trend has a strong momentum
If Aroon(oscillator) has a positive value (that is, Aroon(oscillator)
> 0) then there is an upward trend.
If Aroon(oscillator) has a negative value (that is, Aroon(oscillator)
< 0) then there is a downward trend.
The strength of the trend is the absolute value of the Aroon(oscillator).
That is,
If ABS (Aroon(oscillator)) > 20 then there is a trend
If ABS (Aroon(oscillator)) > 30 then there is a strong trend
Note that the values of 20 for a trend and 30 for a strong trend
are subject to some debate. Some use 25 as the dividing line between
trending and non-trending. Others use 40 as the lowest value indicating
a strong trend.
If the Aroon(oscillator) indicates a positive trend and the Average
Directional Movement Indicator (ADX) indicates a negative trend
(or vice versa), this divergence
is cause for concern.
If Aroon(up) and Aroon(down) move in the same direction and are
close to each other, this indicates a consolidation in process and
no clear trend is evident.
Positive Development Calculation:
For this indicator, a new positive development (NPD)
occurs when Aroon(up) crosses over Aroon(down) or when Aroon(oscillator)
exceeds 30.
This indicator is no longer positive when Aroon(up) x- Aroon(down)
or when Aroon(osc) x- 0.
If this TAI is still positive tomorrow, it will no longer be new,
but will be a cumulative positive development (CPD).
If this TAI was a new positive development (NPD)
yesterday, and is still positive today, then it becomes a cumulative
positive development (CPD).
History:
Aroon is used to determine whether an issue
is trending
or
non-trending and how strong the trend is. Aroon measures the
number of periods that have passed since prices reached recent high
and low values. Developed by Tushar Chande in 1995, “Aroon”
means “dawn's early light” in Sanskrit. Chande chose
that name since this indicator is designed to reveal the beginning
of a new trend.
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