The Aroon indicator helps traders to understand if a price is trending. It also signals a new trend, its strength and anticipates changes from trading ranges to trends. The Aroon indicator was developed by Tushar Chande who also developed the famous Stochastic and RSI. Aroon Down and the Aroon Up indicators are used together and combined are called the Aroon indicator. The idea is that strong uptrends will regularly see new highs, and strong downtrends will regularly see new lows. The indicator signals when this is happening, and when it isn’t.
The Pocket Option terminal offers the Aroon Indicator: to install it click on the “+” icon.
How to Set the Aroon Indicator in Pocket Option Terminal?
In Pocket Option Terminal, Aroon is displayed under the price chart representing a scale with levels: 0, 30, 50, 70, 100 and two lines: up (blue) and down (red).
Now, you need to set the calculation period. For short-term trading, we recommend a value of 25 and for long-term trading we recommend – 14.
To change the period, go to the Menu and select “Active.” You can also modify the color and thickness of the indicator’s lines.
How to Interpret the Signals?
The indicator is self-explanatory. If the Aroon-Up crosses above the Aroon-Down, then a new uptrend may start soon. Conversely, if Aroon-Down crosses above the Aroon-Up, then a new downtrend may start soon. When Aroon-Up reaches 100, a new uptrend may have begun. If it remains persistently between 70 and 100, and the Aroon-Down remains between 0 and 30, then a new uptrend is underway.
So when you see the following lines in relation to the scale you should know:
- 0 to 30 – no trend;
- 30 to 50 – a weak trend;
- 50 to 70 – a momentum;
- 70 to 100 – a strong trend.
At the same time, the Aroon Up reflects an uptrend and Aroon Down – a downtrend. Downtrends are characterized by lower peaks and troughs and imply fundamental changes in the beliefs of traders. A change in trend is fueled by a change in the supply of stocks investors want to sell compared with the demand for the stock by investors who want to buy. By the way, traders should remember that downtrends are coincidental with changes in the factors that surround the asset, whether macroeconomic or specifically associated with a company’s business model.
How to Trade Better with Aroon?
When Aroon-Down reaches 100, a new downtrend may have begun. If it remains persistently between 70 and 100, and the Aroon-Up remains between 0 and 30, then a new downtrend is underway. When Aroon-Up and Aroon-Down move in parallel (horizontal, sloping up or down) with each other at roughly the same level, then the price is range trading or consolidating.
Most traders prefer trading in the direction of the main trend. So the recommendations are:
- Call option when the Aroon Up crosses level 70 from the bottom up;
- Put option when the Arron Down crosses level 70 from the bottom up.
When Aroon-Down reaches 100, a new downtrend may have begun. If it remains persistently between 70 and 100, and the Aroon-Up remains between 0 and 30, then a new downtrend is underway. When Aroon-Up and Aroon-Down move in parallel (horizontal, sloping up or down) with each other at roughly the same level, then the price is range trading or consolidating.
Many traders get excited when the lines cross. If the Up line crosses the Down line from the bottom-up, then a Call contract is acquired, and if vice versa, then Put.
The expiration period should be more than the formation of 3 candles.
As you see, AroonUp and ArronDown are good friends of the traders and generate accurate signals that help to make informed decisions. With Aroon indicator, you will become better and more experienced trader when you train and test your strategy with demo account offered by the Pocket Option.
