# How to use Aroon Oscillator to measure the strength of a trend

## What is Aroon Oscillator?

The Aroon Oscillator (ARO) was developed by Tushar Chande and is similar to the Relative Strength Index. It attempts to show when a new trend is starting and is quite useful in capturing trend and identifying range-bound markets. The indicator consists of two lines – Up and Down. They measure how long it has been since the highest high or the lowest low that has occured within an n period range. You can read more about AROON in his book – The New Technical Reader. This post and the model spreadsheet shows how to use Aroon Oscillator to measure the strength of a trend.

## How to Calculate Aroon Oscillator?

$Aroon[up] = \{\frac{n - PeriodsFromHighestHigh}{n}\} X 100$

$Aroon[down] = \{\frac{n - PeriodsFromLowestLow}{n}\} X 100$

### What are the key takeaways from Aroon Oscillator?

Aroon Oscillator is a powerful tool to measure the strength of a trend. When Aroon Up value stays between 70 and 100, an upward trend is formed. When the Aroon Down stays between 70 and 100, a downward trend is formed. A strong upward trend is formed when Aroon Up is above 70 and Aroon Down stays below 30 at the same time. Similarly, a strong downward trend is formed when the Aroon Down is above 70 while the Aroon Up is below 30. Both Up and Down indicators are complementary.

For a 14 day lookback period, the highest high occured at the 2nd candle. The Aroon Up indicator is simply calculated as:

AroonUp = ((Lookback – # of Periods since highest high) / Lookback) x 100

AroonUp = ((14 – 2) / 14) X 100 or 85.71

Both the Up and Down indicators are indicated as percentages. The main question being addressed here is – how recent are the highest high or lowest low in the past “n” lookback periods.

On the same note, the AroonDown is calculated using the lowest low in the past “n” lookback periods.

AroonDown = ((Lookback – # of Periods since lowest low) / Lookback) x 100

Both Aroon Up and Down indicators are subtracted to obtain Aroon Oscillator.

AroonOscillator = AroonUp – AroonDown

Always be on lookout for crossover. When the Aroon Up crosses above the Aroon Down, it indicates a strengthening of the upward trend. When the Aroon Down crosses above the Aroon Up, it indicates a weakening of the upward trend.

## Limitations of Aroon Oscillator

Aroon oscillator can signal good entry points. It can also give bad or false signals. Like all technical indicators, Aroon is a lagging indicator. Therefore, it is vulnerable to sudden spikes in the asset price. Traders should have efficient exit strategy from such volatilities.

The UI spreadsheet retrieves quote information from Bloomberg OpenMarkets through a lightweight data-interchange format called JSON or JavaScript Object Notification. If this is your first time programming JSON in Excel, you must add certain COM objects to retrieve Bloomberg Markets Web Service through VBA.

Under Developer->Visual Basic->Tools->References, add the highlighted objects.

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