The Aroon indicator is used to determine and measure the trend of a stock and it can also be used to spot consolidations in price trends. In this article we will briefly explain how it is calculated and we will also show how it can be used in our screener.
The Aroon indicator plots 2 lines, which are calculated with the following formula:
Aroon-Up = ((25 - Periods since 25-period High)/25) x 100 Aroon-Down = ((25 - Periods since 25-period Low)/25) x 100
Where 25 is the default value of the indicator parameter and ‘period’ is the timeframe used. On a daily chart this reads: “days since the 25 day high”.
Interpreting the formula, we can summarize:
The Aroon Oscillator is simply the difference between the Aroon-Up and the Aroon-Down indicator and is centered around zero:
Aroon Oscillator = Aroon-Up - Aroon-Down
The indicator will cross the zero level when the Aroon indicators cross on the chart. When the Aroon Oscillator is above zero a rising trend is occurring, while a downtrend will be the case when the indicator is below zero. When the indicator crosses the zero level, a new trend may emerge.
As shown on the chart:
Interesting Aroon related screens
The screener allows filtering for many Aroon conditions, which you can find on the ‘More Technical’ tab in the screener:
An example screens can be found here: spotting consolidations with the Aroon indicator. You can easily adapt the example to your own needs.