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Aroon Index

Developed by Tushar Chande. A technical analysis indicator used to determine a change in the direction of a financial instrument and measure the strength of the trend during a trending market. It consists of two lines: the Aroon Up and the Aroon Down. The calculation of Aroon Up is: n - (periods since highest high in "n+1" periods) * 100 / n.Similarly, Aroon Down is calculated as: n - (periods since lowest low in "n+1 periods) * 100 /n. The Aroon indicator is interpreted as follows: when Aroon Up is between 70 and 100 an uptrend is signaled. Similarly, a reading between 0 and 30 for the Aroon Down, indicates a downtrend. When the two lines move parallel to each other, then a consolidation may follow. A breakout of the consolidation is expected when the two lines cross over or move to an extreme level like 0 and 100. Anticipation of trending markets is signaled by the crossover of the two lines. When the Aroon Up crosses above the Aroon Down then an uptrend is likely to follow. On the other hand, when the Aroon Down crosses below the Aroon Up, then a downtrend is expected.

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