Aroon oscillator is a expansion of Aroon indicator. It is calculated by subtracting the Aroon Down from the Aroon Up. The resultant number will oscillate between 100 and -100.
Aroon Oscillator Formula
Aroon Oscillator = AroonUp – AroonDown.
Trading signals for the Aroon Oscillator:
- Above zero signals an up-trend.
- Below zero indicates a down-trend.
- The farther away Aroon Oscillator is from the zero line, the stronger the trend.
- Above 50 is considered a strong uptrending market
- Below -50 means that the market is trending lower.
- Near 0 means that the market is in transition and not trending.
- Above 50 means strong uptrend.
- Below 50 means strong downtrend.
A decrease of the Aroon Oscillator from above the 50 line shows that the uptrend is consolidating and is reversing direction downward. When the Aroon Oscillator hovers around the zero line over time, then the market is in a directionless period.
When the oscillator moves toward -50 from the zero line, the market is beginning to trend downward. And when the Aroon Oscillator is below -50, then the market is in a strong downtrend.
When the oscillator begins to move upward towards the zero line, the downward trend is slowing down and beginning to reverse direction.
In addition, when the Aroon Oscillator moves higher from the zero line, then the market is moving from a period of non-trending to a period of uptrending.
- Buy when Aroon Oscillator is above zero line.
- Book profit/loss and Exit when Aroon Oscillator moves below 50.
- Sell when Aroon Oscillator is below zero line.
- Book profit/loss and Exit when Aroon Oscillator moves above -50.
This is the technical chart of EURUSD currency pair on H1 timeframe using Aroon oscillator.
The buy signal was given by Aroon oscillator when it moves above zero line and exit signal was signal when it moved below 50. During this period, EURUSD trading gives a profit of good pips from point 1 to point 2, mentioned in the chart.