Aroon indicator forex
Contents:
The Aroon’s Formula
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The Aroon indicator is a technical indicator that is used to identify trend changes in the price of an asset, as well as the strength of that trend. The Aroon Indicator is classified as an “oscillator” since the values fluctuate between calculated upper and lower boundaries. The indicator chart typically has two.
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Aroon Oscillator
Free technical indicator that alerts you on price reversal. There are two signs a consolidation period is emerging. One is if both the Aroon-Up and the Aroon-Down are below The other is if both Aroon-Up and Aroon-Down are moving lower in parallel. It makes sense that if both readings are below 50 it indicates consolidation. A reading below 50 for both indicators means there have been no new highs or lows recorded in over 13 days. When both indicator lines move lower in parallel, it indicates a trading range has formed, with no new highs or lows being posted.
There are some downsides to using the Aroon indicator. One is that during choppy market action the indicator will give poor trading signals as the rapid changes in price cause the oscillator to whipsaw back and forth.
There are also times when the indicator provides a valid trade signal, but it is too late to be useful. Price may have already made a significant move up or down and be ready to retrace when the trade signal first appears. The Aroon indicator is most accurate and useful when combined with analysis of price action and other technical indicators, as well as with fundamental analysis if long term trades are being placed.
The Aroon Indicator is a type of technical momentum oscillator that allows traders to see whether an asset is trending, what direction the trend is in, and how strong the trend is. Because it focuses on the price relative to time it can also be used to spot emerging trends and reversals. Furthermore, it is quite good at identifying times in which the market is consolidating or range-bound.
The theory behind the indicator is that during trends price tends to make new highs or lows regularly, and by tracking that we can determine the strength of a trend, and when trends are beginning or ending. There are two lines in the indicator — an Aroon Up and an Aroon Down.
The Up line indicates bullish strength and momentum, while the Down line is for bearish strength and momentum. Both lines are plotted on a histogram with a range of 0 to , with being the strongest indication of trend. One use of the indicator is to watch for crossovers. When the Up line crosses higher it is a bullish signal and when the Down line crosses higher it is a bearish signal. If both lines remain below 50 it is a sign of consolidation.
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One of the most useful trading strategies using the Aroon Indicator is a crossover strategy where a trader goes long whenever the Aroon Up line crosses above the Aroon Down line. Conversely they would go short whenever the Aroon Down line crosses above the Aroon Up line. There are no exit signals with this strategy other than the line crosses, which means the strategy has a trader in the market all the time.
Aroon Oscillator Examples
The Aroon indicator is rather intuitive and easy to learn, even for those who have only recently started to trade. However, in order to be able to interpret data more reliably and accurately, we highly recommend testing your strategies using this indicator with a risk-free AvaTrade demo account. Disclaimer: All information in and on these pages are provided solely for informative purposes, and are not intended to be taken as financial advice on any issue or subject. No users, traders or site viewers should act, or not act, as a result of AvaTrade content without first consulting suitable financial expert advice.
CFDs including FX are leveraged products which carry a high degree of risk and are not suitable for every investor. Please ensure that you fully understand the risks involved before you engage in any investment activity. The content is not intended for distribution to, or for use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
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