The Aroon Indicator consists of two lines: the Aroon Up and the Aroon Down. The Aroon Up measures the strength of the uptrend, while the Aroon Down measures the strength of the downtrend. The values plotted for each line are calculated as follows:
Aroon Up = ((n- Days Since n-day High)/n) x 100
Aroon Down = ((n – Days Since n-day Low)/n) x 100
n is simply the number of days in a given period. For example, if we were plotting the Aroon Up for a 25 day period, n would simply be 25 (ie. Aroon Up = ((25-Days Since 25-day High)/25) x 100).
The Aroon Indicator rises and falls through a scale of 0 to 100, as we can see from the image above.
When the Aroon Up (or Aroon Down) is higher, this indicates that the uptrend (or downtrend) is stronger. Tushar Chande, who developed the Aroon Indicator, suggested that traders could use the following signals:
An Aroon Up (Aroon Down) that is higher than 70 indicates a strong uptrend (downtrend);
When both Aroons move lower in close proximity, this indicates that there is no clear trend.
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