A COMPREHENSIVE OVERVIEW OF POPULAR TECHNICAL INDICATORS PART III. AROON, PART 1

The Aroon indicator is a conceptually simple technical indicator. Developed in 1995, it is newer than many of the more popular technical indicators. But for some reason, not all charting web sites offer the Aroon indicator. Yahoo! Finance doesn’t offer it. Neither does CME Group. Two charting web sites that do are Stockcharts and Barchart.

Calculation of the two outputs of the Aroon indicator, and involves only a single parameter, a span parameter specifying the number of bars over which to calculate the indicator. The most common setting is 25 days. The formulas are:

Occasionally, people will subtract from to calculate the Aroon oscillator, which varies from -1 to 1.

A look at the historical 5-day close-to-close returns following 25-day Aroon crossovers on non-penny American stock prices from Yahoo! Finance reveals 5-day returns with geometric averages of 0.039% for positive crossovers and 0.020% for negative crossovers. It doesn’t look very promising so far, but we’ll take another look at the Aroon indicator in the future.