The Aroon Oscillator combines the technical indicators Aroon-Up and Aroon-Down into one signal which provides a good picture of stock price trend.
The technical indicators Aroon-Up and Aroon-Down provide technical analysts a good picture of stock price trend. But sometimes it is more convenient to view these signals as one indicator. The Aroon Oscillator is the difference between the Up and Down indicators.
Aroon Oscillator Formula
The Aroon indicators are shown in percentage terms and fluctuate between 0 and 100. Aroon-Up is based on price highs, while Aroon-Down is based on stock price lows. These two indicators are plotted side-by-side for easy comparison.
Application of Aroon Oscillator
A bullish trend bias is present when the Aroon Oscillator is positive, while a bearish trend bias exists when the oscillator is negative. An upward trend is identified when the indicator passes upward through the zero line.
When the Aroon Oscillator increases above the zero line then a strong uptrend is indicated. A downtrend is signaled when the Aroon Oscillator passes below the zero line. Decreasing values below the zero line also indicate a stronger downtrend.