The Aroon indicator shows whether a stock is trending and how strong that trend is.
Aroon was developed in 1995 by Tushar Chande. In the Sanskrit language "aroon" means "dawn's early light". Tushar Chande chose this name since the indicator's purpose is to allow a trader to determine the beginning of a new trend, or the end of an existing trend.
The Aroon indicator has an up line and a down line. When the up and down lines are moving lower in close proximity, it signals that a consolidation phase is under way and no strong trend is evident. When the up line drops below 50, it indicates that the current trend has lost its upward momentum. When the down line drops below 50, the current downtrend has lost its momentum. Values above 70 indicate a strong trend in the same direction as the Aroon (up or down) is under way.
The mathematical formula for determining the Aroon up line is:
[ [ (# of periods) - (# of periods since highest high during that time) ] / (# of periods) ] x 100
The mathematical formula for determining the Aroon down line is:
[ [ (# of periods) - (# of periods since lowest low during that time) ] / (# of periods) ] x 100