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How to Calculate Aroon Indicator Values?

The Aroon indicator calculates Aroon Up and Aroon Down values, representing trend strength and potential price reversals, based on the time elapsed since the last highs and lows.

Oct 20, 2024 at 11:42 am

How to Calculate Aroon Indicator Values

The Aroon indicator is a technical analysis tool used to identify trend strength and potential reversals in the price of a security. It consists of the Aroon Up and Aroon Down indicators, which are calculated as follows:

1. Calculate the Period High and Low:

For each period n, determine the highest high (H(n)) and lowest low (L(n)) within a specified number of prior periods (typically 14 or 25).

2. Calculate the Aroon Up Value:

Aroon Up (n) = 100 * [(n - Period Since Last High) / n]

  • "Period Since Last High" is the number of periods since the last high price.

3. Calculate the Aroon Down Value:

Aroon Down (n) = 100 * [(n - Period Since Last Low) / n]

  • "Period Since Last Low" is the number of periods since the last low price.

Example:

Given:

  • Price data over the past 14 periods
  • Period High and Period Low for each period

Calculation:

Aroon Up:

  • If the current price is the highest in the past 14 periods (n = 0), then Aroon Up = 100.
  • If the current price was the highest 7 periods ago (n = 7), then Aroon Up = 100 * (7 / 14) = 50.

Aroon Down:

  • If the current price is the lowest in the past 14 periods (n = 0), then Aroon Down = 100.
  • If the current price was the lowest 5 periods ago (n = 5), then Aroon Down = 100 * (5 / 14) = 35.71.

Interpretation:

  • Aroon Up: Indicates the strength of the uptrend. Values close to 100 suggest a strong uptrend, while values closer to 0 indicate a weak uptrend or possible downtrend.
  • Aroon Down: Indicates the strength of the downtrend. Values close to 100 suggest a strong downtrend, while values closer to 0 indicate a weak downtrend or possible uptrend.

Crossovers:

  • A crossover occurs when Aroon Up crosses above Aroon Down, indicating a potential reversal from a downtrend to an uptrend.
  • Conversely, a crossover of Aroon Down crossing above Aroon Up indicates a potential reversal from an uptrend to a downtrend.

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