How to use the Aroon indicator in Forex trading? | R Blog RU


In this review, we will get acquainted with the Aroon oscillator indicator. It helps to determine the current trend and find points of entry into the market.

Description of the Aroon indicator

Aroon is a trading indicator that belongs to the group of normalized oscillators. It was developed by Indian trader Tushar Chande in 1995 to assess the current trend in the market, determine its strength or weakness.

Since Chand was born in India, Indian mythology was also reflected in the name of the indicator: in Sanskrit “Arun” means “Charioteer of the Solar Deity” or “Light of the Dawn”.

The Aroon indicator consists of two main lines: Aroon-Up and Aroon-Down.

  • Aroon-Up line (blue) evaluates, on a scale from 0 to 100%, the ratio of the number of periods (weeks, days or hours depending on the selected timeframe) that have passed since the maximum value appeared on the price chart relative to the indicator period. The less time has passed since the last high appeared, the higher the Aroon-Up line is.
  • Aroon-Down Line (red) evaluates on a scale from 0 to 100% the ratio of the number of periods (weeks, days or hours depending on the selected timeframe) that have passed after the formation of the minimum value on the price chart relative to the indicator period. The less time has passed since the last low appeared, the higher the Aroon-Down line.

The Aroon indicator is calculated in a separate window below the price chart. Levels are drawn at the values ​​of 30% and 70%, which help to determine the current trend. If the Aroon-Up line is above the 70% level, and the Aroon-Down line falls below the 30% level, this means that the game is in an uptrend, the bulls are dominating.

Conversely, when the Aroon-Up line is below the 30% level, and the Aroon-Down line rises above the 70% level, this indicates a downtrend and that the bears are in control of the market.

What the Aroon indicator looks like

Installing and configuring the Aroon indicator

To add Aroon to the popular MetaTrader 4 trading terminal, you will need to download the indicator file (using the link at the end of this article) and copy it to the “Indicators” folder. To do this, open the File / Open data directory / MQL 4 / Indicators section through the main menu of the terminal and copy the indicator file to this folder. After that, you need to restart the terminal.

If the process is done correctly, Aroon will appear in the list of custom indicators, and it can be installed on the chart of the desired financial instrument through the main menu: Insert / Indicators / Custom / Aroon. Or you can drag Aroon onto the chart from the “Navigator” window with the mouse (while holding down the left button).

The values ​​of the lines of the Arun indicator are calculated by the formulas:

Aroon-Up = (P – Nmax) / P * 100%
Aroon-Down = (P – Nmin) / P * 100%

Where:

P – indicator period;
Nmax – the number of periods (candles) from the last high;
Nmin – the number of periods (candles) from the last minimum.

When installing the Aroon indicator in the “Input parameters” tab, you can change the following settings:

  • AroonPeriod – indicator period, the default is 14. For higher timeframes, the author recommends using 25.
  • MailAlert – notification of the crossing of the Aroon-Up and Aroon-Down lines by e-mail. “False” – notification disabled, “True” – enabled.
  • SoundAlert – sound notification of the crossing of the Aroon-Up and Aroon-Down lines. “False” – notification disabled, “True” – enabled.

Also, in the “Levels” tab, you should set the levels recommended by the author of the indicator to determine the prevailing trend: 70% and 30%.

Setting up the Aroon indicator
Setting up the Aroon indicator

Trading with the Aroon indicator

The Aroon indicator is used in trading to determine the current trend, but in addition it can give its own trading signals.

Determination of the current trend

The position of the indicator lines relative to each other and the 30% and 70% levels helps to determine the current trend.

Uptrend

During an uptrend, the Aroon-Up line (blue) rises above the 70% level and remains in this area, periodically showing a value of 100%. The Aroon-Down line (red) falls below the 30% level and remains in this area, periodically showing a value of 0%. During an uptrend, it is recommended to look for buy entry points.

Determining if there is an uptrend with the Aroon indicator
Determining if there is an uptrend with the Aroon indicator

Downtrend

During a downtrend, the Aroon-Down line (red) rises above the 70% level and remains during a strong downtrend in this area, periodically showing a value of 100%. The Aroon-Up line (blue), on the contrary, falls below the 30% level and remains in this area, periodically showing a value of 0%. During a downtrend, it is recommended to look for selling opportunities.

Determining the presence of a downtrend with the Aroon indicator
Determining the presence of a downtrend with the Aroon indicator

Crossing indicator lines

The main trading signal of the indicator is the intersection of the Aroon-Up and Aroon-Down lines in the area from 30% to 70%.

Buy signal

A buy signal is formed when the Aroon-Up line (blue) breaks out from below the 30% level and crosses from the bottom up the Aroon-Down line (red) – an upward movement begins in the market. The stop is set beyond the local minimum, Profit can be closed when a significant resistance level is reached or when the lines are crossed backwards.

Formation of a buy signal on the Aroon indicator
Formation of a buy signal on the Aroon indicator

Sell ​​signal

A sell signal appears when the Aroon-Down line (red) breaks out from below the 30% level and crosses the bottom-up Aroon-Up line (blue) – a downward movement is in progress. We put a stop behind the local maximum, Profit can be closed when a significant support level is reached or when the lines cross back.

Formation of a sell signal on the Aroon indicator
Formation of a sell signal on the Aroon indicator

Conclusion

The Aroon indicator, created by Indian trader Tushar Chand, helps to identify the prevailing trend in the market. It also provides its own trading signals, which, for greater reliability, are best used in conjunction with classical technical analysis methods, price figures, and Price Action patterns. Before starting real trading, you should practice using this indicator on a demo account.

Download Aroon indicator


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