Warrior Trading Blog

Aroon Indicator Definition: Day Trading Terminology

The whole point of investing is to find an investment trading at a price that is either too high or too low from where it should be. One who can capitalize on this can start to make a lot of money for themselves.

The trouble is trying to determine when a price is out of line from where it should be. Given this, you will want to examine some indicators to figure out when the price is wrong.

Aroon Indicator Breakdown

The Aroon indicator is one powerful tool that can be used to determine when a trend in a stock is about to happen. It helps investors identify that key moment when the stock is about to change direction. That exact moment when one should be putting their money to work in the stock in one direction or the other.

The way it works is pretty simple. There are two lines known as the “Aroon Up” and “Aroon Down” lines. This indicator was invented in 1995 as a way to measure how a stock is moving. The range of the lines go from 0 to 100. A 0 means it is a weak indication while 100 is a very strong one.

Whichever line is higher is the direction that the trend is taking. When the two lines cross there could be an indication of a new trend developing.

There is a big assumption built into this indicator. It is the assumption that the Aroon lines will show a stock moving towards a record high or a record low. It depends upon the time period you are looking at one your screen as to what those records may look like.

A 24 hour time frame will probably just show a record high or low for that given day. However, a year long time frame could be pointing towards much higher highs and lower lows. Consider paying attention to the Aroon indicator as a way to find new records in stock prices.