Tushar Chande invented the Aroon Indicator in 1995, which evaluates if the value of an asset/stock/cryptocurrency is growing and how strong the trend is, comparable to the Average Directional Index (ADX).
The term "Aroon" means "the first light of dawn" in Sanskrit. Chande picked this term for this technical indicator since it is meant to detect the start of a new trend. Traders may use Aroon Indicators to discern emerging trends, identify consolidations, define corrective periods, and forecast price reversals.
The two Aroon indicators basically monitor when the most recent highs and lows occurred. Lower Aroon values represent a more distantly occurring high or low, and higher Aroon values represent a more recently occurring high or low. Higher Aroon values imply a stronger trend, whilst lower Aroon values suggest a weaker or no trend.
The Aroon-Up and Aroon-Down indicators tally the amount of time periods since a price achieved an x-day high or low.
In a number of ways, these indicators can help market researchers and traders. Trading indications can be provided by aroon crossings. Overlaps between the two Aroon indicators are commonly interpreted as trend shift or market reversal indications. Such crossovers or overlaps can occur when the Aroon-Up indicator generates a bullish crossing just above the Aroon-Down indicator or when the Aroon-Down indicator generates a bearish crossover just above the Aroon-Up indicator.
Indicators have values ranging from zero to one hundred. A value greater than 50 implies that a high/low (whichever line is more than 50) happened in the preceding 12 periods. A number less than 50 indicates that the high/low happened during the 13-period time span. The lower the Aroon Up, the weaker the uptrend and the larger the decrease, and vice versa.
Here's how to compute the Aroon Indicator:
Select an "X" timeframe for the "Aroon Indicator."
To compute the AroonUp and AroonDown indicators, use the following formulas:
AroonUp = 100 times ((X – Number of periods since greatest high)/X);
AroonDown = 100 times ((X – Number of periods since lowest low)/X);