The Aroon Indicator: Reading the Start and Strength of Trends
Aroon is a tool for assessing when price enters a new trend and how strong that trend is. Its two lines help gauge the emergence and fading of trends, making it useful to trend-following traders.
What is Aroon?
Developed by Tushar Chande in 1995, Aroon means the first light of dawn in Sanskrit. As the name suggests, it focuses on the beginning of a new trend. Instead of measuring price changes themselves, it measures how long ago the recent high and low occurred.
Aroon has two lines: Aroon Up for upward movement and Aroon Down for downward movement. Each ranges from 0 to 100, with common lookback settings of 14 or 25 periods.
Calculation and interpretation
For a lookback period N, the formulas are:
- Aroon Up = ((N − candles since the most recent highest high) ÷ N) × 100
- Aroon Down = ((N − candles since the most recent lowest low) ÷ N) × 100
A newly established high places Aroon Up near 100; an older high moves it closer to 0. Aroon Down behaves similarly for lows.
| Condition | Meaning |
|---|---|
| Aroon Up at 70–100 | A strong uptrend or the start of one |
| Aroon Down at 70–100 | A strong downtrend or the start of one |
| Both lines below 50 | No clear trend; a sideways range |
Trading applications
The most common signal is a crossover between the two lines. Aroon Up crossing above Aroon Down suggests a possible upward transition; the reverse suggests a downward transition. One line staying near 100 while the other remains near the bottom can indicate a strong ongoing trend.
Combining Aroon with moving averages or RSI can improve confidence. For example, use Aroon to assess trend emergence and RSI to cross-check overbought or oversold conditions.
Limitations and precautions
Aroon is not universal. Understand these limitations clearly.
- Weakness in ranges: Without a trend, frequent crossovers create more false signals or whipsaws.
- Lag: As a time-based measure, it can react late to sudden changes and miss fast moves such as volatility breakouts.
- Ignoring move size: It measures when highs and lows occurred, not how large the rises and falls were.
Use Aroon as a supporting indicator of trend conditions, not as a sole decision-maker. No indicator predicts future prices reliably, and every signal can fail. Validate it thoroughly and define stops before applying it, always keeping possible losses in mind.
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