✔️ Information reviewed and updated in December 2023 by Eduardo López
One of the keys to being a good trader is knowing if the market is developing in an upward, downward or definite trend. This can be done by means of indicators like Aroon.
In this way, the operator who knows how to perfectly interpret the behavior of the market will have better conditions to be able to adapt a trading strategy, and to be able to make better decisions.
Technical analysis requires tools to be able to identify the situation the market is going through, and also to be able to determine the strength of its trend. In this article we will tell you more about the Aroon Indicator, which is used to detect trends and represents the number of days since the last high.
➡✨Definition of the Aroon Indicator
This indicator allows to identify the market trend, and trend reversals in other financial markets at an early stage. The Aroon indicator is a trend indicator, which unlike a moving average is represented in the form of an oscillator.
It is used to determine market movements in relation to buying and selling pressure, which is based on the market highs and lows. In addition, it can be used to detect trends.
➡✨ How do you get Aroon?
The Aroon indicator is an indicator of the stock market that is made up of two curves. This indicator represents the number of days since the last high for a period of “y” days.
It has a default value of 25 periods, which is usually programmed in 10 periods. However, it is the operator who decides to change the period according to the indicator. These types of indicators are between 0 and 100.
➡✨ How is it interpreted?
It is important that if we want to use this indicator we pay attention to the two curves and the levels 70, 50 and 30. A low Aroon Up and a high Aroon Down indicate a downtrend.
According to the curves:
If the Aroon Up line is above the Aroon Down line then there is an uptrend. And, on the other hand, if the Aroon Down line is above the Aroon Up line then there is a downtrend.
Regarding the levels that are present in the oscillator, it can be interpreted as follows:
If the Aroon Up line is above 70, then there is a strong uptrend. But, if the Aroon Down line is above 70, then there is a downtrend.
It can also be interpreted that if a line falls below the 50 threshold then it means that the current trend is weakening. And, if a line falls below 30, then there may be a possible trend reversal.
➡✨ Reasons to use it
The Aroon indicator allows you to detect what the market trend is, and what the trend reversals will be. One of the reasons to learn how to use it is that it will help you a lot to detect entry and exit signals in the market. In addition, using it will help you improve your accuracy and avoid falling into false signals.