How to Calculate Aroon Indicator Values?

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.