Aroon indicator: how to use it for cryptocurrency trading

Aroon indicator: how to use it for cryptocurrency trading

In this article, we will learn about the Aaron indicator, also known as the Aaron Oscillator.

What is the Aaron Index?

In 1995, Tushar Chande, the head of Tuscarora Capital Management, author of the books The New Technology Trader (1994) and Beyond Technical Analysis (2001), developed the Aroon indicator. It is very useful in capturing trends and identifying niche markets.

How to calculate the Aaron indicator?

First, let's understand the calculation method of Aroon.

• AroonUp
• AroonDown

AroonUp is used to measure uptrends, and AroonDown is used to measure downtrends. Usually, AroonUp calculates highs and AroonDown calculates lows, but you can also calculate them using only the closing price.

To calculate the AaronUp value, you need to know two things:

• Looking back
• Period since peak

Let's assume you have selected 14 cycle reviews, and then we need to check the highest/closing prices for the last 14 periods.

Let's assume the highest point appears on the 4th most recent arrow. Then AroonUp calculates as follows:

AroonUp = ((review - (period starting from the highest point))/ ((review))

So AaronUp is equal to (((14-4) / 14

So this is equal to 0.7142.

As you may have noticed, the AroonUp indicator is a percentage value. It simply shows how many recent highs/lows were during the past X-axis. The AroonUp value calculated above is expressed in the percentage format of 100 times.

AroonUp = 0.7142 * 100

This means that AroonUp = 71.42.

Similarly, AroonDown uses the minimum value for the past X time period.

AroonUp = ((review - (period starting from the lowest point))/ ((review))

Calculating the Aaron indicator

Subtract the two Aarons to calculate the Aarons oscillator.

AroonOscillator = AroonUp - AroonDown

While the Aaron oscillator is a simple way of representing both indicators, let's see how to explain them in detail.

Interpretation of the Aaron indicator

When the AroonUp value exceeds the AroonDown value, it indicates an uptrend in the market.

However, this crossover of the Aaron indicator is not a strong signal, but it is considered the beginning of a trend. The uptrend is only confirmed when the AaronUp value is above 50.

The Aroon Line

In the chart above, the green Aaron line represents the AaronUp value, which is higher than the red line or AaronDown line, and the market is trending upwards.

You can also explain this with the Aaron Oscillator, if the Aaron Oscillator is above zero it indicates an Uptrend, if it is above 100 it is considered a confirmation of the Uptrend, if it is below 100 we can confirm it is a downtrend.

Aroon oscillator

The Aroon indicator can also be used to identify a range boundary market. Whenever the AroonUp and AroonDown indicators are parallel or the Aroon Oscillator is flat, it indicates a range boundary market.

Like all technical indicators, Aroon is also a lagging indicator. It is therefore vulnerable to sudden peaks. To prevent such volatility, traders should have appropriate exit criteria in place.

We should combine the Aaron indicator with the RSI to increase the odds of generating trading signals during our cryptocurrency trading process.