The Aroon Oscillator is an indicator closely linked with the workings of the Aroon Indicator; it uses measurements from the Aroon Indicator (named Aroon Up and Aroon Down) to determine the strength and longevity of a certain market trend.
The Aroon indicator is named for the Sanskrit word Aroon, which means early light of the dawn. The Aroon is a technical indicator system brought forth back in 1995 for the stock markets. Tushar Chande was the brain behind the creation of Aroon, and it was used to decide whether a stock is experiencing a trend, and if yes, how strong a certain trend is. The terminology emerges from the fact that just like early dawn light, the Aroon indicator can announce the coming of a new trend.
Now, what are the Aroon Up and Aroon Down measurements mentioned above? They are the number of periods since the last 25-period high and low (respectively) witnessed, usually. The Aroon Oscillator is built through subtracting the Aroon Down from Aroon Up. The trading indicator moves between 100 and -100, with zero as the crossover line in the middle. Naturally, when the indicator is more towards 100, it is signifying an uptrend, and when it's closer to -100, it’s channeling a downtrend.
Notably, the closer to 100 or -100 the indicator is, the stronger a particular trend is.
Aroon Up for a certain period of time is determined by the percentage of the time that passed between the start of the time period and the point of time when the highest closing price of the period was witnessed. When a certain crypto is setting new highs during the given time period, Aroon Up will go up to 100.
On the other hand, if the crypto has moved lower throughout every unit in the time period being considered, Aroon Up will be zero.
Aroon Down is calculated in the exact same way in the opposite direction. So, the calculation for Aroon Down will consist of new lows instead of new highs.
Now, the formula for Aroon Up is:
[ [ (The total number of periods considered) - (the number of periods since the highest high during the given time) ] / (the total number of periods considered) ] x 100
Since Aroon Down is calculated in the exact opposite manner, the formula for it would go like this:
[ [ (The total number of periods considered) - (the number of periods since the lowest low during the given time) ] / (the total number of periods considered) ] x 100
As always, it’s best to use the Aroon Oscillator in combination with other trading indicators for the most accurate results.
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