Firetip X: Aroon Indicator
The Aroon Indicator
The Aroon is a popular indicator is available in the Firetip X trading platform. The Aroon indicator is a technical indicator that is primarily used by traders to identify trend changes in the price of a futures contracts, as well as the strength of that actual trend. Basically, the indicator measures the time between highs and the time between lows over a set period of time. The logic behind it is that strong uptrends will see regular new highs, and strong downtrends will see new lows. The Aroon indicator signals when this is and isn’t happening.
What is in the Aroon?
The Aroon indicator consists of the “Up” line, which measures the strength of the uptrend, and the “Down” line, which measures the strength of the downtrend.
What do you look for in the Aroon indicator?
-When the Up line is above the down, it indicates bullish price behavior.
-When the Down line is above the Up, it indicates bearish price behavior.
-When the Up & Down lines cross, it indicates a change in trend. For example, if the Up line crosses above the Down, it may mean that a new uptrend is beginning.
-The indicator period is typically applied to 25 period of data. Therefore, the indicator is showing how many periods it has been since a 25-period high or low.
-The indicator moves between values of 0 and 100. For example, a reading above 50 would mean that a high or low (whichever line is above 50) was seen within the last 12 periods.
What Can the Aroon Indicator Tell You?
The Up and Down lines fluctuate between the values of 0 and 100, with values near 100 indicating a strong trend and values near zero indicating a weak trend. The lower the value of the Up, the weaker the uptrend and stronger the downtrend, and vice versa. The main logic of the Aroon indicator is that a futures contract’s price will regularly close at new highs in the period during an uptrend, and regularly make new lows in a downtrend.
The indicator focuses on the last X periods (you can change the number or periods in the platform), but it is scaled from 0 to 100. Therefore, an Up reading above 50 on a 25 period Aroon means the price made a new high within the last 12.5 periods. A reading near 100 would mean a new high was seen very recently. The same logic applies to the Down line. Crossovers can signal entry or exit points.
When both indicators are below 50, it may signal that the price action is consolidating, meaning new highs or lows are not being created. Some traders watch from breakouts as well as the next Aroon crossover to signal which direction price is going.
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