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| (# of periods) - (# of periods since highest high during that time) | X 100 |
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| # of periods |
Respectively the Aroon(down) formula is :
| (# of periods) - (# of periods since lowest low during that time) | X 100 |
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|
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| # of periods |
For instance, by calculating 14-period Aroon(up) and Aroon(down) lines on a daily chart:
If the highest price for the past 14
periods (bars or days) has been noted 6 periods (bars or days) ago, then
Aroon(up) would be (14-6) / 14 x 100 = 57.
Respectively, if within the same period of 14 days (14 bars) the lowest price
was noted on the previous bar (1 day ago) then Aroon(Down) would be (14-1) / 14
x 100 = 1
Basically, Aroon indicator represents the amount of time
(number of bars or periods in percentage) between the beginning of the analyzed
period and the bar at which the highest price for Aroon(up) and the lowest price
for Aroon(down) during that time period occurred.
From the formulas above, we may see that each time when the stock closes at a
new high, the Aroon(up) will be equal to 100%, while Aroon(down) would be
tending to zero. Respectively each time when the stock closes at a new low the
Aroon(down) will be 100% while Aroon(up) would be tending to zero.
Chart 1: Aroon Indicator

The Aroon Oscillator is calculated simply by subtracting Aroon(down) from Aroon(up)
Aroon Oscillator = Aroon(up) - Aroon(down)
Because Aroon lines move in the range between 0 and 100, the Aroon Oscillator oscillates around zero center line in a scale between -100 and +100.
Chart 1: Aroon Oscillator

The Aroon lines and Aroon oscillator are used in
technical
analysis to determine how strong the current trend is.
The high, above 70, Aroon(up) indicates a strong up trend. Respectively the
high, above 70, Aroon(down) values would indicate the strong down trend. At the
same time Aroon values below 50 would indicate weakening of the trend.
Furthermore, the moments when the Aroon oscillator crossovers zero line could be
considered for buying (if the oscillators move up) or selling (if the
oscillators move down).
The Aroon indicator calculations are based on the bar close price and it could
be used in a
trading system as a price based valuation of a trend strength.
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