Summary
Aroon Up-Down Indicator is a technical analysis tool created by Trushar Chande to help traders identify trends in a given asset. It distinguishes whether the market is in an uptrend, downtrend, or sideways phase by examining how long it has been since the asset reached its latest highs or lows within a set period. In this article, you’ll learn how the Aroon Up-Down Indicator works, how it’s calculated, and how you can use it effectively in your trading strategy.
Top 3 Key Takeaways
- The Aroon Up-Down Indicator measures the time since a market's most recent highs and lows to identify trends.
- It can signal uptrends, downtrends, trend reversals, and neutral phases based on the position of the Aroon Up and Aroon Down lines.
- The indicator can be used for both trend-following strategies and as a signal for entry and exit points in trades.
Table of contents
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- What is the Aroon Up-Down Indicator?
- How is the Aroon Up-Down Indicator Calculated?
- Interpretation of Aroon Up-Down
- Aroon Up-Down Application
- Trading Strategies with Aroon Up-Down
- Advantages of the Aroon Up-Down Indicator
- Limitations of the Aroon Up-Down Indicator
- MQL Code
- FAQs about Aroon Up-Down Indicator
What is the Aroon Up-Down Indicator?
The Aroon Up-Down Indicator consists of two lines, Aroon Up and Aroon Down, designed to identify the current market phase of an asset. These phases can be uptrend, downtrend, or sideways. The indicator helps traders understand how long it has been since a new high (for Aroon Up) or a new low (for Aroon Down) was reached within a specified period. It displays these values as percentages relative to the total period length.
How is the Aroon Up-Down Indicator Calculated?
The Aroon Up-Down Indicator is calculated using the following formulas:
- Aroon Up: 100 * (Periods - Number of periods since the last high) / Total Periods
- Aroon Down: 100 * (Periods - Number of periods since the last low) / Total Periods
Both lines produce values between 0 and 100%. A high value indicates that a recent high or low occurred, while a low value shows that it has been a while since a new high or low was recorded.
Interpretation of Aroon Up-Down
The Aroon Indicator can be interpreted based on the position and values of the Up and Down lines:
- Uptrend: The Aroon Up line is above the Aroon Down line, and the Aroon Up value is greater than 70%.
- Downtrend: The Aroon Down line is above the Aroon Up line, and the Aroon Down value is greater than 70%.
- Trend Reversal: A crossover between the Aroon Up and Aroon Down lines signals a potential trend reversal.
- Sideways/Neutral Market: Values between 70% and 30% for both lines indicate a neutral market phase.
Aroon Up-Down Application
The period length used for the Aroon Indicator can be customized based on the trader’s strategy:
- Longer periods: These settings help identify longer, more substantial trends, reducing the sensitivity to short-term fluctuations.
- Shorter periods: These settings are more sensitive but may lead to false signals due to the focus on short-term market movements.
Trading Strategies with Aroon Up-Down
The Aroon Up-Down Indicator can serve as both a filter and a signal generator for trades:
- Trend-following: If the Aroon Up line is above the Aroon Down line, it signals an uptrend, and traders might prioritize long positions.
- Reversals: When the Aroon lines cross, it indicates a possible trend reversal, where traders can switch from long to short positions or vice versa.
For example, when the Aroon Up line crosses the Aroon Down line from below, it can be interpreted as a buy signal. Conversely, when the Aroon Down line crosses the Aroon Up line from below, it can signal a sell opportunity.
Advantages of the Aroon Up-Down Indicator
- Helps identify market trends (up, down, or sideways) based on historical price behavior.
- Can be adjusted for sensitivity by changing the period length.
- Useful for both trend-following strategies and spotting reversals.
Limitations of the Aroon Up-Down Indicator
- Shorter periods can lead to more frequent, false signals.
- Longer periods may delay signals, especially during rapid trend changes.
- May be less effective in highly volatile or sideways markets without additional confirmation from other indicators.
MQL Code
//+------------------------------------------------------------------+
//| Aroon.mq4 |
//| Copyright © Unknown |
//+------------------------------------------------------------------+
#property copyright "Copyright © Unknow"
#property link "https://www.tradissimo.de/"
#property indicator_separate_window
#property indicator_buffers 2
#property indicator_color1 clrGreen
#property indicator_color2 clrRed
#property indicator_minimum 0
#property indicator_maximum 100
#property indicator_level1 30
#property indicator_level2 70
extern int AroonPeriod=10;
//---- buffers
double AroonBuffer1,AroonBuffer2;
//+------------------------------------------------------------------+
//| Custom indicator initialization function |
//+------------------------------------------------------------------+
int init()
{
string short_name;
SetIndexStyle(0,DRAW_LINE);
SetIndexBuffer(0,AroonBuffer1);
SetIndexStyle(1,DRAW_LINE);
SetIndexBuffer(1,AroonBuffer2);
//---- name for DataWindow and indicator subwindow label
short_name = "Aroon("+AroonPeriod+")";
IndicatorShortName(short_name);
SetIndexLabel(0,short_name);
//----
SetIndexDrawBegin(0, AroonPeriod);
//----
return(0);
}
//+------------------------------------------------------------------+
//| Aroon |
//+------------------------------------------------------------------+
int start()
{
int i,counted_bars=IndicatorCounted();
//----
if( Bars < =AroonPeriod) return(0);
if(counted_bars < 1)
for(i=1;i <= AroonPeriod;i++) {
AroonBuffer1=0.0;
AroonBuffer2=0.0;
}
//----
i= Bars-AroonPeriod-1;
if(counted_bars >= AroonPeriod) i= Bars-counted_bars-1;
int nHigh,nLow;
while(i > =0)
{
double Max=-100000;
double Min=100000;
for( int k=i;k < i+AroonPeriod;k++){
double Num=Close;
if(Num > Max){
Max=Num;
nHigh=k;
}
if(Num < Min){
Min=Num;
nLow=k;
}
}
//Aroon Indicator math..
AroonBuffer1=100.0*(AroonPeriod-(nHigh-i))/AroonPeriod;
AroonBuffer2=100.0*(AroonPeriod-(nLow-i))/AroonPeriod;
i--;
}
return(0);
}
//+------------------------------------------------------------------+
FAQs about Aroon Up-Down Indicator
The Aroon Up-Down Indicator is a technical tool that measures how long it has been since the asset hit its latest highs or lows to determine trend direction.
An uptrend is indicated when the Aroon Up line is above the Aroon Down line, while a downtrend occurs when the Aroon Down line is above the Aroon Up line.
Yes, when the Aroon Up and Aroon Down lines cross, it often signals a potential trend reversal in the market.
Settings can vary, but a 14-period length is commonly used. Adjusting the period length will change the indicator's sensitivity to market movements.
The Aroon Indicator works best in trending markets and may provide false signals in highly volatile or sideways markets. It's recommended to use it alongside other indicators for better accuracy.