The Aroon indicator is a technical indicator, a type of oscillator. Like other oscillators, the Aroon indicator is a trend indicator. An example of another oscillator indicator is the TRIX indicator. Below we can see an example of the Aroon indicator against BTC.
The Aroon indicator uses two lines. These are the Aroon up (AU), which is the default orange line on AAX, alongside the Aroon down (AD), which is the default blue line on AAX. When using the Aroon indicator, we are looking for crossovers between the AU and the AD, similar to the MACD.
The Aroon indicator showing bullish & bearish periods
Bullish periods shown by the Aroon begin with a bullish crossover. With the indicator, a bullish crossover occurs when the orange AU line crosses above the blue AD line. The crossover suggests that a bullish trend is beginning, switching from a bearish trend. In the example below, the AU hit the 100/100 level, with the AD hitting the 0/100 level. This demonstrated a definitive trend switch, thus leading to an extended bullish period.
Bearish periods on the Aroon indicator are the opposite to bullish periods. Bearish periods occur when the AU crosses below the AD, with a bearish crossover. Below we can see an example of a bearish period. First, there was a bearish crossover with the AD reaching 100/100 with the AU hitting 0/100. The bearish strong bearish trend ended with a bullish crossover as indicated.
Using the Aroon indicator to find the general trend
Below we can see an example of the Aroon indicator demonstrating that a cryptocurrency is within a strong bullish trend. Strong trends on the Aroon indicator are shown when either the AU or AD spend an extended period of time above 60/100, with the other line less than 40/100. In the example below there is a clear strong bullish trend at the start, lasting 51 days before there was a bearish crossover. This bearish crossover was then a correction period lasting 15 days. Once there was another bullish crossover, this indicated that there would be a continuation of the previous strong bullish trend.
The first strong bullish trend in this example saw BTC go from $10,000 USD to $19,000 USD. The correction period was from $19,000 USD to $22,000 USD. Finally the continuation of the strong trend (bullish trend resumed) saw BTC go from $23,000 USD to $35,000 USD before a bearish crossover occurred.
Aroon indicator – no general trend
Unlike the example above, the example below shows a period of no clear trend direction. This is due to none of the bullish / bearish crossovers sustaining their breakouts. Therefore, there is no clear bullish / bearish trend.
Using the Aroon indicator in TA (example)
Below we can see an hourly chart for BTC. During this period, there was a parallel channel formation, with BTC expected to fulfil wave (5), breaking towards $35900 USD.
However, before BTC broke below the ascending support from the channel, the Aroon indicator had a bearish crossover (as shown with the vertical purple line), suggesting that a break below the ascending support could occur – giving rise to a potential short position.
As we can see below, the suggestion of a short seen through the bearish crossover was correct.
Although like all indicators the Aroon does not provide regular, accurate bullish/bearish signals by itself. It needs to be used alongside other indicators.