Learn how to use and interpret the Aroon Oscillator, a popular technical analysis indicator, on our informative page. Discover its calculations, formula, significance, and how to apply this powerful tool for better trading decisions.
The Aroon Oscillator is a technical indicator that is used to identify potential trend changes and measure the strength of a current trend. It is part of the Aroon Indicator, which consists of two lines known as the Aroon-Up and Aroon-Down lines. Unlike the Aroon Indicator, which displays these lines separately, the Aroon Oscillator combines them into a single line.
The Aroon Oscillator is calculated by subtracting the Aroon-Down line from the Aroon-Up line. The Aroon-Up line measures the number of periods since the highest high within a given period, while the Aroon-Down line measures the number of periods since the lowest low within the same period. By subtracting these two values, we get the Aroon Oscillator, which oscillates between -100 and +100.
The Aroon Oscillator provides insights into the market trend and potential trend reversals. Here's how to interpret it:
If the Aroon Oscillator is above zero, it suggests that the uptrend is dominating the market. The higher the values, the stronger the uptrend. Traders may consider buying or holding onto their positions during this period.
When the Aroon Oscillator is below zero, it indicates a prevailing downtrend in the market. The lower the values, the stronger the downtrend. Traders may consider selling or refraining from opening new positions until the trend shows signs of reversal.
If the Aroon Oscillator crosses above the zero line, it suggests a potential reversal from the downtrend to an uptrend. Conversely, if it crosses below the zero line, it signals a possible reversal from the uptrend to a downtrend.
Traders also look for divergence between the Aroon Oscillator and the price movements. For example, if the price makes a new high, but the oscillator fails to reach a new high or even creates a lower high, it might indicate weakness in the uptrend.
The Aroon Oscillator is a useful tool for traders to assess the strength and potential reversals of trends. By analyzing this oscillator, market participants can anticipate when to enter or exit positions or potentially modify their trading strategies. However, it's important to utilize the Aroon Oscillator in conjunction with other indicators and tools to make well-informed trading decisions.
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