Approved for Advanced Traders

The Aroon Oscillator Indicator – Powerful and Useful Indicator

Full Review Of The Aroon Oscillator Indicator

Looking for a tool that will help determining the strength and the direction of a trend? The Aroon Oscillator was designed to do the job. This indicator was created by Tushar Chande who chose to name it Aroon because it means “Dawn’s Early Light”, since it is supposed to find the beginning (dawn) of a down or uptrend. At first sight it seems to be an easy indicator to grasp, with only a few simple rules to learn. This indicator is not already pre-installed as a default indicator in MT4 for those of you using that platform so you have to download and install it manually. You’ll find it here Download Aroon Oscillator.

 

 

 

What Is The Aroon Oscillator Indicator?

Unlike other oscillators that measure price relative to time, the Aroon Oscillator measures time relative to price. The Aroon Oscillator is actually calculated with two separate lines and then subtracting the value of Aroon-down from Aroon-up. The Aroon-down signals a downtrend when it’s above the 70 line and the Aroon-up is below the 30 line. When the Aroon-up is above the 70 line and the Aroon-down is below the 30 line then the market is in an uptrend. The display is similar to MACD as I mentioned, the Oscillator itself is the difference between the down and up value of the two Aroon lines. One difference is this indicator oscillates between -100 and +100 with zero being in the center. When the Aroon is oscillating above zero prices are trending positively, creating new highs. On the other hand, when the oscillator is below zero, prices are in a downtrend, creating new lows. The farther away from the zero line the Aroon is oscillating, the stronger the prevailing trend is. By default the “Aroon Period” is set to 10, in the picture below you can see how the indicator looks like, setup on a chart with the center line (zero) marked and Aroon-Period set to 15.

 

preview of aaronNotice how easy it is to identify down/uptrends. The Oscillator is either above or below zero, there are no curves in the center. Blue color showing strong uptrend and red showing strong downtrend. White bars occur during consolidating markets.

 

Other than the “Aroon Period” you can choose to set a “Filter” value and “Count Bars” value. In my experience I found that the pre-set values seem good enough to work with. However, you can experiment with this until you find the values that satisfy your needs. Furthermore, be careful trading the crossovers on the zero line because a strong signal requires time to be confirmed and can often  be a fake signal.

 

 

Rules:

Uptrend:

When the Aroon oscillates above zero an uptrend is imminent. Strength of this trend is indicated by how far above the zero line the Aroon is oscillating.

 

Downtrend:

When the Aroon oscillates below zero a downtrend is imminent. Strength of this trend is indicated by how far below the zero line the Aroon is oscillating.

 

 

Why Does The Aroon Oscillator Suck?

The indicator is not efficient by itself and the signals need time to develop. Another drawback is that once the indicator has created its curves (bars) above or below the zero line the trend can already be about to reverse. It can also be difficult knowing exactly which Aroon period works best on which time frame and some experimentation is needed. 

 

 

Why Doesn’t The Aroon Oscillator Suck?

The Aroon Oscillator is very easy to learn and understand. It’s either oscillating above or below the zero line and to make it even easier; the bars below zero are in red and the bars above zero are blue and consolidation areas are white. The indicator works well if you are looking to verify the direction and the strength of the trend with other indicators for entry.

 

 

 

Conclusion – What Awaits Aroon’d’ The Corner!

A powerful and useful indicator is the answer. Of course it all depends on how you choose to use it. By trading against the main trend you’ll risk entering when the retracement is over and the trend is about to continue up/down. Although some experimentation is needed to find out which values and periods work best for you, the indicator itself is easy to figure out. One of the main necessities of creating a good strategy is of course getting confirmation, hence you need to apply other indicators to co-operate with the Aroon Oscillator. Since we are looking at an indicator that shows the strength and the direction of a trend, you can combine it with at least one more indicator that does the same job for further verification.  I recommend using at least one other indicator to confirm that the Aroon is triggering the correct signals. For example, EMA and RSI. The indicator performs best if you use it in the direction of the main trend. Setting the “AroonPeriod” to a higher value and using a higher time frame, say 25 period and the daily chart for example, gives a more accurate signal.

 

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