This is simply a trend indicator that helps the Forex traders in identifying the market trends. It shows is the market has a specific trend or if it is stagnant or range bound. Unlike many other indicators, this indicator indicates both the downward and upward trends strengths of each of the loaded charts. This may seem confusing but that is not the case. By providing the two trend strengths, the trader is able to make more precise and accurate decisions.
This indicator displays red and aqua line on a chart below the main trading. The aqua line shows an uptrend while the red line shows a down trend. The indicator indicates the strength of the market price trend by the line which is above the other. The line that is on top of the other shows that that trend is dominant over the other. If the red line crosses the aqua line and gets above, then there is a downward trend in the market. The same applies if the aqua line gets above the red line.
Fig.1. The Aroon Up Down indicator loaded on a EURUSD chart.
The indicator chart (chart below the main trading chart) has a vertical scale from 4.5 1o 100.
There are several things that a trader should take heed of when using this indicator. These things include:
- The trader should trade when the indicator is at the extremes. A strong uptrend is signaled by the uptrend line getting to between 70 and 100 in the vertical scale of the indicator.
- The trader should avoid trading when the indicator shows that the market have no trend. This is indicated by the indicator’s lines moving parallel to each other than crossing each other.
- The trading signal are when the lines crosses over each other. This is the best time to place orders. But if the trader is too late and he finds that the line crosses each other a long time ago, then he should wait for a crossing to occur.
How to place trades using the Aroon Up Down indicator
- Placing buys:
The trader should place a buy order when the aqua line crosses over the red line. This is when the aqua colored line gets above the red line. This mainly happen when the lines have risen to almost 100 level as per the scalp of the indicators chart. Therefore a trader should be careful to note that when the line are between 10 and 100 level, there is an expected crossing for placing buy order.
- Placing sells:
The trader should place a sell order when the red line crosses over the aqua line. This is when the red colored line gets above the aqua line. This mainly happen when the lines have dropped to almost 0 level as per the scalp of the indicators chart. Therefore a trader should be careful to note that when the line are between 10 and 4.5 level, there is an expected crossing for placing buy order.
Example of opening order using the Aroon Up Down indicator.
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