Aroon Trading Indicator: How to Use It

The Aroon indicator is a momentum indicator that traders use to identify trends in the market. It's a relatively new indicator, developed in the 1990s by Tushar Chande. The Aroon indicator consists of two lines: Aroon Up and Aroon Down. These lines are used to estimate the trend of the market.

The Aroon Up line is used to measure the strength of an uptrend, while the Aroon Down line is used to measure the strength of a downtrend. The Aroon indicator is based on the idea that the longer a trend remains in place, the higher the chances are that it will reverse. By comparing the Aroon Up and Aroon Down lines, traders can better predict when a trend is likely to change direction.

To interpret Aroon signals, traders look for crossovers between the Aroon Up and Aroon Down lines. When the Aroon Up line crosses above the Aroon Down line, it's a signal that the trend is shifting bullish. When the Aroon Down line crosses above the Aroon Up line, it's a signal that the trend is shifting bearish.

In addition to crossovers, traders also pay attention to the Aroon indicator's numerical values. The indicator has a scale of 0 to 100, with higher values indicating stronger trends. When the Aroon Up line is above 70, it's considered a strong uptrend. When the Aroon Down line is above 70, it's considered a strong downtrend.

Traders can use the Aroon indicator in a number of ways. One strategy is to use the Aroon Up line and Aroon Down line to identify trend direction and then use other indicators to confirm entry and exit points. For example, if the Aroon Up line is above 70 and the Aroon Down line is below 30, it's a signal that the market is in a strong uptrend. A trader may then look to enter a long position when other indicators confirm the bullish trend.

Another strategy is to use Aroon crossovers as entry and exit signals. When the Aroon Up line crosses above the Aroon Down line, it's a signal to enter a long position. When the Aroon Down line crosses above the Aroon Up line, it's a signal to exit a long position and enter a short position.

While the Aroon indicator can be a powerful tool for identifying trends in the market, it's not without its limitations. One of the biggest limitations of the Aroon indicator is that it can't predict sudden price movements, such as those caused by news events or other unexpected factors. Additionally, the Aroon indicator is best used in conjunction with other indicators and should not be relied on as the sole basis for trading decisions.

The Aroon indicator is a valuable tool for traders looking to identify trends in the market. By understanding how to interpret Aroon signals, traders can make better trades and improve their overall performance. However, it's important to keep in mind that the Aroon indicator is just one tool in a trader's toolkit and should be used in combination with other indicators and analysis techniques.