Do you know Aroon? I do, but not very well

I’m not one to promote or push one form or another of technical analysis – especially when it comes to oscillators. I find the choice of what to use – and what’s rubbish – can lead to heated arguments. Personally, I prefer to stick as closely as I can to price action as what I really, really want to see is fear and greed. But I have to admit that, when markets are a bit ‘blah’ as I’m finding them this year, I need crutches.
But with so little momentum I’m finding my usual favourites have little to add. I don’t use anything secret or special, just the usual stuff in a bog-standard tool box. The usual suspects, like a couple of moving averages (which I’ll happily ditch when I feel like it), MACD, RSI. When things get really tough the Commodity Channel Index and Aroon.

The latter, I see rarely in generally available analysis. Whether it’s unknown or unused, I don’t know. But if it’s the former, here’s a quick summary for you to catch up and then test out to see if it’s for you.
According to Investopedia.com, a site I can recommend (and another good one is Stock Charts), it’s a way of measuring when a market’s trending and how strong the tendency is.

https://www.investopedia.com/terms/a/aroon.asp

Developed by Tushar Chande relatively recently (hence me thinking some readers might not have heard of the method), it consists of two lines covering (usually) a 25-day period which move between 0 and 100: the up one, how long it’s been since a new recent high, the down one, time since a new low. Therefore, up line above down line equals bullish and vice versa. Line crossovers suggest a change in trend.

The attached chart is hopefully a market you’re not familiar with, the Swedish krona against the euro. I find this helps one approach a new technical analysis method with a neutral frame of mind. I’ve also added the MACD so you can see the similarities between these methods.

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Posted in Finance, Markets, STA news, Technical Analysis, Trading, Trending
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One comment on “Do you know Aroon? I do, but not very well
  1. Trevor Neil says:

    Aroon is great. It shows the direction and strength of a trend and, unlike the ADX, reacts well to breakouts. It looks odd and requires effort to understand it but, once mastered, it is extremely powerful.
    I promote it as an underrated indicator

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About Nicole Elliott

Nicole Elliott

A graduate of the London School of Economics and Political Science (BSc Social Psychology) Nicole Elliott has worked in banks in the City of London for the last 30 years. Whether in sales, trading or forecasting technical analysis has always been the bedrock of her thinking. Key expertise lies within all areas of treasury: foreign exchange, money markets, fixed income and commodities.

She has also added to the body of knowledge of the industry writing the first western book on Ichimoku Cloud Charts. Strong media links and a cult following are due to her prescient calls on the markets and often entertaining format.

Nicole can be contacted at trending@sta-uk.org

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