Lesson T6.7 · 7 of 7 · Trend indicators
Aroon indicator: Aroon Up and Aroon Down, new trend or consolidation
Aroon Up shows how long it has been since the highest high of the last 25 periods, and Aroon Down since the lowest low, on a scale from 0 to 100. 100 means the extreme was today. Aroon Up at 100 with Aroon Down below 30 can signal a new trend; both below 50 point to a consolidation.
Terms in this lesson
- Price momentum
- How much the stock has risen or fallen in recent months: the force of the move.
- Support and resistance
- Prices at which a stock has often stopped falling or stopped rising.
- Stop-loss
- An order that sells automatically if the price falls to a level you choose.
How Aroon Up and Aroon Down are calculated
Definition
What is Aroon?
A pair of indicators that measure how long it has been since the last high and the last low.
Tushar Chande created the indicator in 1995. The name comes from Sanskrit and means “dawn’s early light”: Chande designed it to show the start of a new trend. Unlike most indicators, Aroon does not look at how far the price has moved but at when it made its extremes.
- Aroon Up(25 - days since the 25-day high) ÷ 25 × 100
- Aroon Down(25 - days since the 25-day low) ÷ 25 × 100
- The scaleFrom 0 (the extreme is 25 days old) to 100 (the extreme is today).
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Create a free accountWhat 100, 70, 50 and 30 mean on Aroon
The 70 and 30 levels are guides, not fixed rules. What matters most is the combination: an uptrend has Aroon Up high and Aroon Down low. When both are below 50, or falling in parallel, neither buyers nor sellers are making new extremes: the market is consolidating.
New trend or consolidation: Aroon on the chart
StockCharts describes the start of an uptrend in three stages: Aroon Up crosses above Aroon Down, then moves above 50 while Aroon Down falls below 50, then reaches 100. On the chart below, the price spends several weeks in a range.
When Aroon gets it wrong: a false break from consolidation
The chart below starts with the same consolidation. It stops on the candle where Aroon Up reaches 100.
Lessons are educational. They are not a recommendation to buy or sell. Investing involves risk and you can lose money. Sources: StockCharts ChartSchool (Aroon: Tushar Chande, 1995, the meaning of the name, the 25-period formulas, the 70-100 and 0-30 ranges, the 50 centre line, the three stages of a new trend, consolidation). The charts are teaching diagrams, not real prices.