The Aroon indicator is used to identify trend changes in the price of an asset, along with the strength of that trend. This indicator essentially measures the time between highs and lows over a given period.
The theory behind Aroon is that strong uptrends will regularly see new highs, and strong downtrends will regularly see new lows. The indicator signals when this is happening, and when it isn't. It consists of the "Aroon Up" line, which measures the strength of the uptrend, and the "Aroon Down" line, which measures the strength of the downtrend.
When Aroon Up is above Aroon Down, it indicates bullish price behavior. Conversely, when Aroon Down is above Aroon Up, it indicates bearish price behavior. Crossovers of the two lines can signal trend changes.
The indicator moves between zero and 100. A reading above 50 means that a high or low was seen within the last 12 periods. A reading below 50 means that a high or low was seen within the last 13 periods. Aroon helps watch for breakouts as well as signaling in which direction price is going by virtue of the crossovers.
X = number of periods (typically 25 periods are used)
Aroon Up = ((X − periods since X period high) / 25) × 100
Aroon Down = ((X − periods since X period low) / 25) × 100
To compute Aroon, track the highs and lows of an asset for the last 25 periods (or customize the number of periods as required).
Calculate the number of periods since the last high and low.
Insert the numbers into the Up and Down Aroon formulae mentioned above.