Tushar Chand, a famous American engineer and professional trader of Indian origin, became famous for his innovative ideas in the development of indicators and trading systems. I have already mentioned him in my blog as the author of the hybrid StochRSI indicator, and now I want to talk about Chand’s most striking invention - the Aroon indicator. This is a very simple, but at the same time useful indicator that will help you timely predict market transitions from flat to trend movement and back. What is symbolic, the name Aroon translated from Sanskrit means “early light of dawn”, i.e. early signal.
Aroon indicator Description
Aroon is a MetaTrader indicator that enables early detection of Forex trends, as well as trend reversals in several other financial markets.
The Aroon indicator belongs to the technical indicators, but, unlike moving averages, for example, the Aroon MT5 indicator is presented in the form of an oscillator. It is needed to determine market movements, anticipating buying and selling pressures in accordance with the high and low points of the market.
Money management
Significantly determining the results of work on the stock exchange, the rules of money management should be studied by the trader first of all. By building effective work with it, it is much easier and faster to increase your income. If market participants need stable, good income, it is also important for them to understand the rules of money management:
Minimum capital : when trading on the stock exchange, it is recommended to place a minimum amount of funds per bet; the option cost should be no more than 5% of the account; It is worth purchasing inexpensive options, the purchase of which will not affect the state of the deposit. By applying these rules for trading, you will preserve your capital well.
Minimum deposit : when trading on the exchange, it is recommended to take part in trades that will save your deposit; When purchasing an asset, do not transfer the entire deposit to it; its positive state should be maintained as much as possible, because this capital will still be useful. By applying these rules for trading, you will save your deposit for a long time.
Minimum options : when trading on the stock exchange, it is recommended to buy a minimum of options, say 2-3 assets; this applies more to new exchange players; As you become more experienced, feel free to increase the number of different transactions. By applying these rules for trading, you will work on the stock exchange most effectively.
Minimum of emotions : when trading on the stock exchange, it is recommended to first get ready for serious work, since to make the right decisions you will need analytics and balanced, clear decisions; Remember also that in the market it is not enough to use only experience; your emotions are what makes the work productive. By applying these trading rules, you will achieve the necessary heights in trading.
What does the Aroon oscillator look like?
If you are not yet familiar with this free indicator for the MetaTrader trading platform, you may be wondering what the Arun indicator looks like on a chart?
Aroon MT4 oscillator looks like an oscillator with boundaries from 0 to 100 and consisting of two curves:
- Aroon Up in the form of a blue line
- Arun Down as a red line
Source: CFD on EUR/USD, example chart D1, MT4 Admiral Markets.
Therefore, Aroon MetaTrader 4 is quite easy to read. The description of the interpretation of the Aroon MT4 indicator will take only a few lines. But first, let's talk about how the MetaTrader 4 and 5 Aroon Forex indicator works.
What does the formula for Aroon Indicator look like?
As stated earlier, the Aroon Up & Down indicator is a stock market indicator consisting of two curves. Here is the exact method for calculating them:
- Aroon Up = (number of periods - number of periods from the maximum) / number of periods * 100%
- Aroon Down = (number of periods - number of periods from the minimum) / number of periods * 100%
Oscillator calculation Aroon = Aroon Up – Aroon Down
For example, to calculate Aroon Up for a period of 10 Japanese candles:
Aroon Up = (10 - number of periods from the high of the last 10 candles) / 10 * 100%
As you can see, the Aroon score is expressed as a percentage.
Setting up the Aroon MT4 generator is simple and is based on only one element:
- Period
As a rule, the indicator is programmed for 10 periods. However, the trader can choose a different number of periods to adjust the sensitivity of Aroon MT4 at his discretion. The fact that the main parameter of the Aroon MT4 and MT5 indicator can be customized at your own discretion is a real advantage!
But how to interpret Aroon Forex curve readings?
How to use the indicator to open trades
Arun is used not only as an indicator for entering the market, but also as a filtering tool. Many algorithms give false signals. Therefore, they can be eliminated using Aroon. It is also used to determine the moment of the end of a flat. This is a long period when there is no clear trend in the market and the price moves erratically. Most strategies work precisely during a trend, so finding the end point of a flat is very important.
We recommend that you further study the rules and methods of trading against the trend. Such strategies are more suitable for experienced users, as they carry additional risks.
Search for trading signals
If you use the indicator to detect trading signals, you should take into account the location of its lines relative to the important levels of 30 and 70:
- When the red line crossed 30, turned around and went higher again, you should open a BUY trade.
- When the red line crossed 70, turned around and went lower again, it is worth opening a SELL trade.
You can enter the market even when one line is recalculating another. At this point, the trend reverses: for example, if the trend was upward, the price will begin to fall. In this case, you should open a SELL order.
Stop loss is set at a local maximum or minimum. It can also be installed 30 points from the entry point or along the nearest resistance or support line. The order is closed at the moment when the Arun indicator curves intersect with each other again, but in the opposite direction.
You can also take profit in other ways, for example, by setting a take profit in advance. Another option is to use a trailing stop. This is a convenient tool that follows the candles and, in the event of an unexpected reversal, closes the transaction, moving it to a break-even position.
Aroon indicator as a filter
Arun can also be used as a filtering tool. Again, you should study the position of the indicator lines relative to important levels - 30, 50, 70 and 100. For Aroon-Up, the rules are as follows:
- The curve is in the zone between 70 and 100 – only buy signals can be considered.
- In the 50-70 zone, buy signals are also considered, although they are already weakening.
For Aroon-Down, the recommendations are the opposite:
- The curve is in the zone between 70 and 100 – only sell signals can be considered.
- In the 50-70 zone, sell signals are also considered, although they are already weakening.
It is important to understand that Arun himself, like any other instrument, also periodically gives false signals. To filter them you need:
- Study the readings of the higher timeframe and consider it a priority. For example, if the main interval is H1, then the highest will be D1, and for M15 - H4.
- Pay attention to the readings of other indicators.
- Increase the Aroon period value in the settings as described above.
Determining the end of a flat
Arun can also be used to understand whether a flat has ended or not (it is also called consolidation). Finding this moment is very simple - as soon as the lines intersect, the chart will again begin to move along the trend. Moreover, it is important to look at the direction of their intersection:
- the Up curve after crossing went up towards level 70 - an upward trend is emerging, so you can only consider buy signals;
- After crossing, the Down curve went down towards level 30 – a downward trend is emerging, so you can only consider sell signals.
Aroon Indicator - Interpretation of Indicators
How to interpret Arun? How to determine the trend using the Aroon indicator?
These are the most likely questions you are asking yourself right now.
Now we will answer this question!
Interpreting Aroon MetaTrader is quite simple, it all depends on the two curves discussed earlier, as well as the oscillator levels.
Regarding the two curves, we can interpret them as follows:
- If the Aroon Up line is above the Aroon Down line, it indicates a strong uptrend.
- If the Aroon Down line is above the Aroon Up line, it indicates a strong downtrend.
Regarding the AroonOsc levels, we can interpret them as follows:
- If the Aroon Up line is above 70, it indicates a strong uptrend.
- If the Aroon Down line is above 70, it indicates a strong downtrend.
Besides:
- If the line drops below 50, it means the trend is weakening.
- If the line falls below 30, it indicates a possible change in trend direction.
Expiration
Expiration (from English Expiration, “end”) is the moment when trading in a particular asset ends, and participants in these trading learn the results of their forecasts regarding market dynamics. It is also a basic concept of working on the stock exchange, which, like the basics of money management, can make trading much more profitable.
Types of options:
- Ultra-short options - 30 seconds - 5 minutes.
- Short-term options – 10 minutes – several hours.
- Medium-term options – one day – several weeks.
- Long-term options – month – six months.
Is expiration extension allowed?
Accepted, not on all platforms. This is a very convenient function that allows you, during trading, if the forecast is incorrect, to extend expiration and reduce your losses by increasing your income.
Expiration rules:
- Beginners to the financial market are recommended to initially trade long-term transactions that are stable and have minimal risks of losses.
- Financial market professionals are recommended to trade with expiration, which will make their work not only more comfortable, but also more productive.
- Financial market players who currently need immediate capital from trading are recommended to trade short-term options that will generate income in at least 30 seconds.
- Financial market players who currently need stable income from trading are recommended to trade long-term options, which will bring a decent income.
Expiration in strategies with Aroon
Expiration at an overbought-oversold :
Short-term trading : allowed; when trading with the Aroon indicator, which perfectly shows trend signals, with such an expiration, you should always remember its risks; you need to combine the tool with other indicators. Medium-term expiration : allowed; To make trend trading with Aroon more productive, you need to combine it with additional indicators to eliminate false signals and see profitable ones. Long-term expiration : allowed; Aroon allows long-term trading due to a good reflection of the presence of a trend, as well as its strength; It’s still worth combining it with additional tools; When working with such an expiration, take advantage of fundamental analytics, which will bring significant profits.
Expiration on signal of line crossing:
Short-term trading : allowed; When working with this indicator, which perfectly shows trend signals, with such an expiration, you should always remember its risks; you need to combine the tool with other indicators. Medium-term expiration : allowed; To make such trading more productive, you need to combine it with additional indicators to eliminate false signals. Long-term expiration : allowed; Aroon allows you to carry out long-term trading thanks to good signals showing the trend, as well as its strength; It’s worth combining it with additional tools; When working with such an expiration, take advantage of fundamental analytics, which will bring significant profits.
Expiration with a signal of parallel movement of lines
Short-term trading : allowed; When working with this indicator during such a turbo expiration, it is important to always remember its risks; you need to combine the tool with other indicators. Medium-term expiration : recommended; considered in this case to be the most reliable and productive; you can easily track the trend and have time to make a profitable bet; you also need to combine it with additional indicators to eliminate false signals. Long-term expiration : not recommended; in this case, it is difficult to understand when this signal will appear again over a long period of time; such trade will be unproductive.
While learning the basics of trading, do not forget to pay attention to expiration, which will help you achieve the desired result. To do this, get acquainted with one of the simplest and most convenient terminals of the Binomo broker, which offers a choice of expiration from 30 seconds to 1 day. Get acquainted with the broker's website binomo.com right now and become much more successful.
Aroon Indicator - Sequence of Operation
The Aroon trend signal appears in the following sequence:
- The indicator lines will intersect first
- Then the lines will cross level 50
- Finally one of the lines reaches the value 100
So, we can say that the first stage of an uptrend is when the Aroon Up crosses the Aroon Down. Keep in mind that the Aroon indicator allows you to visualize the time indicators of a trend, that is, its beginning and end.
Then comes the second step - when Aroon Up rises above 50 and Aroon Down falls below 50.
Finally, the third step is when Aroon Up reaches level 100, and Aroon Down is located in a relatively low area (around 30).
You should be aware that the first and second stages do not always occur in the same order.
Results
Honestly, I don't think you'll use Aroon. This is a very specific and unpopular indicator. But perhaps it will be useful to someone, because there are not so many trendy, non-trivial turkeys.
Well, since I intend to thoroughly slobber all the key indicators of technical analysis on the site (they are poorly described on the Russian Internet), of course I could not pass by the rather young, but unique Aroon.
Don't forget that indicators are a good tool, but only an auxiliary one. Before using any indicator on your chart, basic analysis should already be done. Added support/resistance lines, trend lines and channels, studied the main candles. And only then - the indicator. Not the other way around.
Aroon indicator and trading signals
Now that you know how to interpret the Aroon Oscillator, you need to learn how to trade it and understand what Aroon indicator strategies are at your disposal.
Many Aroon signals can be depicted on a Forex chart, for example:
- One of the curves reaches an extreme, and the other moves to the opposite extreme: an uptrend is strong when Aroon Up rises above 70, and at the same time Aroon Down falls below 30. For a downtrend, the opposite pattern is relevant.
- The two signals together characterize a potential range: If Aroon Up and Aroon Down are parallel to each other, this indicates market consolidation.
- If both curves fall below 50, this indicates a lack of directional movement.
- When Aroon Up crosses Aroon Down, it is a buy signal.
Source: EUR/USD CFD, Arun Indicator - H4 chart example, MT4 Admiral Markets.
Let's try to compare the indicator's performance with the performance of other indicators. Let's start with:
- Arun vs MACD
For example, MACD or moving average convergent divergence has nothing in common with the Aroon indicator, except that they both belong to the MetaTrader family of oscillators.
Now let's try the following comparison:
- Arun vs ADX
Oddly enough, these indicators have similar features.
The Aroon indicator uses the number of periods as its main parameter.
The up and down Aroon lines represent the percentage of time between the most recent extremes. This helps determine the direction and strength of the trend in the market you are in.
ADX determines the force of movement, to direct it it is necessary to use +DI and -DI, an integral part of the ADX system.
ADX is based on a much more complex calculation formula with the ATR, Average True Range, compared to the Aroon indicator.
Setting up the oscillator and preparing for work
Let us immediately note that it is possible to select the optimal settings only experimentally, by studying market history and evaluating potential transactions in retrospect. The first thing we'll talk about is the timeframe. As with other technical analysis tools, the smaller it is, the more false signals the trader will receive. A large period allows you to ignore the flat and concentrate exclusively on strong long-term movements. By default, when moving the oscillator to the chart, it is set to 14.
MailAlert and SoundAlert are nothing more than notifications about crossings of the red and blue lines (that is, at the moment of a break in the current trend or the birth of a new one) with messages and sound signals, respectively. In addition to the period and alerts, you also need to configure the levels. This is done on the corresponding tab in the window shown in the screenshot above. Traders usually set 3 values: 30, 50 and 70.
A trend can be considered emerging when a line of a certain color crosses the 50 mark upward, and the passage of the 70 level indicates that the movement has reached significant strength. Similarly, with the fading and reversal of the market, this is indicated by crossing the 50 mark in the downward direction, and being below the 30 level indicates a complete absence of trend potential in the corresponding direction.
What is Aroon Indicator
The Aroon MT4 Indicator is an MT4 oscillator and indicator, but it is not usually included in the basic package of the platform.
Therefore you need to download:
- Aroon mq4 or Aroon mql4 for MetaTrader 4
- Aroon mq5 or Aroon mql5 for MetaTrader 5
You can access the mql4 Aroon indicator or the mql5 version of the Aroon indicator on the MetaTrader website.
Aroon Expert Advisors are also available for use in automated trading. It's always better to first learn how an advisor works before you start using it!
You can find examples of tests of the Aroon Oscillator on the Aroon Stock Exchange blog.
Advantages and disadvantages
All computer analysis tools have their positive and negative features. The Aroon indicator is no exception. To decide on the need to practically use this instrument in your trading, you should consider its advantages and disadvantages:
| pros | Minuses |
| With the correct settings, it accurately displays the beginning of a reversal trend | A trial period is required. This will allow you to accurately set the input parameters of the indicator and select 2-3 optimal trading assets |
| Easy to use | |
| Can be used to work with almost any exchange assets |
Important! Using a period that is too low makes the oscillator lines sensitive to market noise, which can lead to the loss of part of the deposit. The complex use of the Martingale method when working with this tool is allowed only if you have some experience. For novice traders, this will only help them lose their invested money faster due to the human factor and lack of practical skills.
The Aroon indicator is a promising oscillator that can be effectively used when trading binary options or for medium-term trading on the foreign exchange or stock market. To do this, it is extremely important to spend 1-2 weeks working with a demo account to develop practical skills and select the optimal asset for earning money.
Aroon Oscillator
The Aroon Oscillator occupies a range between -100 and +100 and represents the difference between Aroon Up and Aroon Down.
Thus, the intersection of the Aroon Up and Aroon Down curves is represented on the Aroon MT4 oscillator as a transition above or below the value of 0.
Aroon Oscillator Divergence highlights the intersection of two curves and the distance between them. This helps to identify the intersection of Aroon Up and Aroon Down and hence receive buy and sell signals in a simple and convenient way.
Source: EUR/USD CFD, H4 chart, MT4 Admiral Markets.
Aroon Indicator Strategy
Here is an example of trading with the Aroon indicator.
Source: USD/JPY CFD, example chart D1, MT4 Admiral Markets.
This example uses a CFD on the USD/JPY currency pair on the daily time frame. The Aroon Forex indicator is configured for 25 periods.
We see that the Aroon Down is moving above the Aroon Up, showing a sell signal at 112.50.
This Aroon signal then strengthens, confirming a strong downtrend with the Aroon Down moving above 70 while the Aroon Up remains below 30.
The Aroon indicator no longer displays crossovers and therefore the USDJPY CFD is falling.
Then we observe the reverse intersection of the Aroon indicator curves, which means a buy signal at the level of 107.30 with an increase of more than 500 points.
Subsequently, the rebound of the Forex pair intensifies, confirming the need to take profits.
Arun indicator parameters
Aroon, trend indicator (Aroon)
You can only configure the indicator period, since this is the only truly important parameter for trading. This is so because the indicator is calculated using N periods after extreme points on the price chart. For trading on small timeframes, the recommended value for the indicator period is 25.
Indicator levels 70 / 50 / 30 divide the market into phases.
