Top 5 Aroon Trading Strategies for Olymp Trade.

What is the Aroon?

Aroon is a technical indicator that shows trend changes in the price of an asset and the strength of the trend.

It also gives bullish and bearish entry signals.

In matters strength of a trend, the Aroon will show when the market is consolidating hence a weak trend, and also when the market is trending healthily or strongly.

What makes the Aroon Indicator?

The Aroon indicator is composed of the following:

• Up curve, histogram, area, or dots – tracks uptrends.
• Down curve, histogram, area, or dots – tracks downtrends.
• Scale running from 0 to 100.

Basic Signals Provided by the Aroon.

Basically, when the Up component (curve, histogram, area, or dots) of the Aroon is above the Down component, the market trend is upwards.

However, when the Down component of the Aroon is above the Up component, the market is trending downwards.

Therefore, the Aroon shows changes in trends by giving crossovers between the up and down components.

Mere Crossovers Not Enough.

Having said that, there is a disclaimer that you should be aware of. A mere crossover of the Up component from below to above the Down component doesn’t entirely mean an uptrend.

In the same breath, a mere crossover of the Down component from below to above the Up component does not necessarily mean a downtrend.

There is more than meets the eye as we shall discuss below.

Usually, when the Aroon Up and Down components are close to each other even after a crossover, that trend is weak.

Most times when this happens, you find out that the market is ranging or consolidating.

However, when the Up and Down components are far away from each other, the market is usually trending healthily to strongly in either direction, depending on which Aroon component is above the other.

What does all that mean?

How far is far enough to say that the two components are far enough to be taken seriously?

How close is too close to ignore the Aroon signal?

Aroon Signal Threshold.

Well, the Aroon, basically gives a bullish signal when the Up curve, histogram, area, or dots is above the Down one and reads above 70 while at the same time, the Down one reads below 30.

On the other hand, the Aroon gives a bearish signal when the Down curve, histogram, area, or dots is above the Up one and reads above 70 while at the same time, the Up one reads below 30.

So do not go in just after the crossover has happened.

You must wait for the threshold of over 70 and below 30 to be met before you make a decision to go in.

However, those crossovers may serve as exit signals telling you that things may be headed in the opposite direction, so if you had positions in place, you need to pay attention to such crossovers.

There are times a crossover happens and then the Aroon Up and Down components take a sharp bend to become parallel.

That falls under cases where the Aroon components are close to each other and a close look at the price will show you that the market is consolidating.

Avoid cases where the Aroon components are crossing each other frequently up and down because such, clearly, is an undecided market that is ranging.

Aroon Trading Strategies.

The Aroon indicator has been in existence since the ’90s and all that while to date, traders have been working around the indicator to make sense out of it. 

Meaning, the number of strategies formulated around the tool is countless.

There may actually be as many Aroon trading strategies as there are traders since the tool was launched.

Well, we agree that indeed so many strategies do exist, strategies based on the indicator in question, the Aroon indicator.

But there is a question we must first answer.

Do all of them, however many, work well?

Are they all effective and consistently profitable as you would want for a trading strategy?

Here is Our List of Top 5 Aroon Trading Strategies for Olymp Trade.

• The Aroon-ADX Trading Strategy.
• Aroon with MACD Trading Strategy.
• The Aroon-EMA Trading Strategy.
• Aroon with Support and Resistance.
• The Aroon-Williams %R Trading Strategy.

1. The Aroon-ADX Trading Strategy.

The Aroon-ADX trading strategy is a trading strategy that blends the Aroon Indicator and the Average Directional Index (ADX).

Because we have said a lot about the Aroon, let us talk about the Average Directional Index (ADX) next.

Average Directional Index (ADX).

The Average Directional Index is a chart analysis tool that helps measure the strength of a trend, whether uptrend or downtrend.

The indicator is made up of the ADX curve/histogram/area/dots, the +DI curve/histogram/area/dots and the -DI curve/histogram/area/dots.

The three elements oscillate between 0 and 100.

In brief, the ADX oscillator will be represented by three lines crossing over each other and moving on a scale that runs from 0 to 100.

The ADX oscillator and all its components will not display on the main chart but on a window separate to and below the main chart.

Basically, you will be using the ADX to measure the strength of an uptrend or a downtrend.

It will be an uptrend if the +DI element is above the -DI element. Conversely, it will be a downtrend if the -DI element is above the +DI element.

Have you established which trend it is using the +DI and the -DI relations?

 

 

The next thing is to measure the strength of that trend using the ADX curve, histogram, area, or dots.

A reading of the ADX element below 20 translates to a weak trend while a reading above 50 means the trend is strong.

A +DI element above a -DI element coupled with a reading of above 50 of the ADX element means that the market is strongly trending upwards.

On the contrary, A -DI element above a +DI element and a reading of ADX element above 50 means that the market is strongly trending downwards.

The Strategy.

Simple uh?

Indeed the ADX is a simple tool and easy to master.

How is the index supposed to be used along with the Aroon then, to make money while trading? 

Let’s talk about that shortly.

The primary tool for signal generation in this strategy will be the Aroon. Signals generated using the Aroon can then be confirmed using the ADX.

Step 1 – Signal.

The Aroon has multiple ways of giving bullish and bearish signals as we discussed before.

Here are the bullish and bearish signal specifications for this strategy:

• Bullish Aroon signal – the Aroon Up line, dots, or histogram must have crossed over from below to above the Aroon Down line, dots, or histogram.

The signal is not complete until the Aroon Up component reads above 70 as the Aroon Down component reads below 30.

Once those readings are met, the bullish signal is complete.

• Bearish Aroon Signal – the Aroon Down line, dots, or histogram must have crossed over from below to above the Aroon Up line, dots, or histogram.

The signal is not complete until the Aroon Down component reads above 70 as the Aroon Up component reads below 30.

Once those readings are met, the bearish signal is complete.

Step 2 – Confirmation.

Has the Aroon given you either a bullish or a bearish signal?

You cannot rely absolutely on such a signal unless you have confirmed it with the ADX.

Here is how to confirm:

• Bullish signal confirmation – the +D element of the ADX must be above the -D element and the ADX line must be reading above 50.

That way, you are sure that the price is trending upwards with huge strength.

• Bearish signal confirmation – the -D element of the ADX must be above the +D element and the ADX line must be reading above 50.

That way, you are sure that the price is trending downwards with huge strength.

Step 3 – Entry.

Enter a buy position following a confirmed bullish signal and a sell position following a confirmed bearish signal.

Step 4 – Exit.

Exit the buy position in case the Aroon Up component crosses over from above to below the Down component.

On the contrary, exit the sell position in case the Aroon Down component crosses over from above to below the Up component.

Alternatively, exit the buy position once the ADX reading dips below 20 or the +D component dips below the -D component of the ADX.

You should also exit the sell position once the ADX reading dips below 20 or the -D component dips below the +D component of the ADX.

2. Aroon with MACD Trading Strategy.

This strategy brings together the Aroon indicator with the Moving Average Convergence Divergence (MACD) to spot high probability entries.

Let us discuss the Moving Average Convergence Divergence (MACD) and understand it better before we dive into the strategy.

Moving Average Convergence Divergence (MACD).

MACD is a trading tool which traders use to signify both the direction and the strength of a market trend.

MACD is composed of a zero line, fast-moving average, slow-moving average, and a histogram or curve.

Usually, when the market is trending upwards, the MACD moving averages and the histogram or curve shift from below to above the zero line.

The fast-moving average may also cross over from below to above the slow one.

However, when the market begins to trend downwards, the MACD moving averages and the histogram or curve shift from above to below the zero line.

The fast-moving average may also cross over from above to below the slow one.

The Strategy.

MACD is not a sophisticated tool.

It is simple and easy to use.

So how do traders blend the MACD and the Aroon in a profitable trading strategy? Let us find out.

The primary tool is the Aroon, which we shall use as the signal generator.

Signals obtained using the Aroon will then be confirmed using the MACD.

Step 1 – Signal.

As we mentioned, the Aroon has multiple ways of giving bullish and bearish signals as we discussed before.

Here are the bullish and bearish signal specifications for this strategy:

• Bullish Aroon signal – the Aroon Up line, dots, or histogram must have crossed over from below to above the Aroon Down line, dots, or histogram.

The signal is not complete until the Aroon Up component reads above 70 as the Aroon Down component reads below 30.

Once those readings are met, the bullish signal is complete.

• Bearish Aroon Signal – the Aroon Down line, dots, or histogram must have crossed over from below to above the Aroon Up line, dots, or histogram.

The signal is not complete until the Aroon Down component reads above 70 as the Aroon Up component reads below 30.

Once those readings are met, the bearish signal is complete.

Step 2 – Confirmation.

Have you identified a signal?

It needs confirmation from a second tool, the MACD.

Here is how to go about confirming Aroon oscillator signals:

• Bullish signal confirmation – the fast MACD Moving Average must cross over from below to above the slow MACD Moving Average.

Alternatively, the MACD Histogram/curve or both MACD Moving Averages must shift from below to above the zero line.

• Bearish signal confirmation – the fast MACD Moving Average must cross over from above to below the slow MACD Moving Average.

Alternatively, the MACD Histogram/curve or both MACD Moving Averages must shift from above to below the zero line.

Step 3 – Entry.

Enter a buy position following a confirmed bullish signal and a sell position following a confirmed bearish signal.

Step 4 – Exit.

Exit the buy position in case the Aroon Up component crosses over from above to below the Down component.

On the contrary, exit the sell position in case the Aroon Down component crosses over from above to below the Up component.

3. The Aroon-EMA Trading Strategy.

If there is a trading strategy that displays a perfect harmony between the Exponential Moving Average and another tool, it is the Aroon-EMA strategy.

It blends the Aroon and EMA so well in an effective and profitable trading strategy.

But what is an Exponential Moving Average? Let us talk about it next.

Exponential Moving Average (EMA).

The Exponential Moving Average is a technical indicator that calculates and shows the average of a given range of prices of an asset over a specified number of periods.

In this strategy, the EMA used is applied to a number of periods that you deem fit as a trader, say the default setting of 10 periods.

EMA is different from other moving averages because it places a greater significance on the most recent data in its calculation, making it a more preferable moving average.

EMA presents in the form of a continuous line on the main chart.

The calculations are presented in the form of a line connecting the results of the calculations in a smoothed continuous line.

When the EMA is sloping upwards and the price is trading above it, then the market is on an uptrend.

However, when the EMA is sloping downwards and the price is trading below it, then the market is on a downtrend.

The Strategy.

The primary tool in this strategy will be the EMA.

Signals derived from the EMA will then be confirmed by the Aroon indicator.

Step 1 – Signal.

The EMA is simple in how it gives trading signals.

Here is how EMA bullish and bearish signals look like:

• Bullish EMA signal – the EMA must be sloping upwards and the price must have crossed to trade above the EMA.
• Bearish EMA signal – the EMA must be sloping downwards and the price must have crossed to trade below the EMA.

Step 2 – Confirmation.

The next thing you must subject your signal to is a confirmatory test.

This confirmatory test is possible using the Aroon indicator. Here is how the confirmation works:

• Bullish signal confirmation – the Aroon Up line, dots, or histogram must have crossed over from below to above the Aroon Down line, dots, or histogram.

The confirmation is not complete until the Aroon Up component reads above 70 as the Aroon Down component reads below 30.

Once those readings are met, the bullish signal is completely confirmed.

• Bearish signal confirmation – the Aroon Down line, dots, or histogram must have crossed over from below to above the Aroon Up line, dots, or histogram.

The confirmation is not complete until the Aroon Down component reads above 70 as the Aroon Up component reads below 30.

Once those readings are met, the bearish signal is completely confirmed.

Step 3 – Entry.

Enter a buy position following a confirmed bullish signal and a sell position following a confirmed bearish signal.

Step 4 – Exit.

Exit the buy position in case the Aroon Up component crosses over from above to below the Down component.

On the contrary, exit the sell position in case the Aroon Down component crosses over from above to below the Up component.

Alternatively, exit the buy position once the price crosses over to begin trading below the EMA.

Exit the sell position once the price crosses over to begin trading above the EMA.

4. Aroon with Support and Resistance.

This strategy, as the name clearly suggests, is one based on not only the Aroon indicator but also brings support and resistance to the picture.

It would make more sense if we talked about support and resistance first before we proceed to talk about things you may not understand, don’t you think so?

Let us have this support and resistance thing settled in the next few paragraphs then.

Support and Resistance.

Support is a market price level that indicates a strong buy pressure.

It hints at a surplus of buyers and so falling prices, almost always, seem to reverse upwards once they reach such price level or zone.

Resistance, on the other hand, is a market price level that indicates strong selling pressure.

It points to a surplus of sellers and so rising prices, almost always, seem to reverse downwards once they reach such price level or zone.

Usually, no indicator will tell you that this is a support level or this is a resistance level.

You spot support and resistance levels using price action. I think it would also be prudent if we talked briefly about price action also.

Price Action.

Price action is basically how the price behaves.

If a trader uses price action to trade, they simply observe the highs and lows of the price and obey what the price is saying about itself without the influence of any indicator, oscillator, or technical tool.

Price action may be in many forms such as support levels, resistance levels, trend breakouts, and many more concepts.

The concepts we shall dwell on here, are support and resistance.

That said, you will observe a price level or zone at which many and the most extreme swing highs seem to form regularly and call it resistance.

On the contrary, you will observe a price level or zone at which many and the most extreme swing lows seem to form regularly and call it support.

Use that information together with our prior definitions of support and resistance to connect the dots.

The Strategy.

I have this feeling that you now understand fully, what support and resistance are, as concepts of price action.

Now, how you should balance the concepts with the Aroon indicator to trade profitably is what we are about to find out.

The primary tool in this strategy will be the concepts of support and resistance. Signals which support and resistance give can then be confirmed using the Aroon.

Step 1 – Signal.

Here is how to obtain bullish and bearish signals using support or resistance:

• Bullish support signal – establish a zone of strong buy pressure, where falling prices, almost always, seem to reverse upwards once they reach that zone.

That will be the support zone and a bullish signal. Note that the support may have either a horizontal or diagonal layout.

• Bearish resistance signal – establish a zone of strong sell pressure, where rising prices, almost always, seem to reverse downwards once they reach that zone.

That will be the resistance zone and a bearish signal. Note also that the resistance may have either a horizontal or a diagonal layout.

Step 2 – Confirmation.

Next, you must subject your signal to a confirmation. You should do that using the Aroon indicator. Here is how the confirmation works:

• Bullish signal confirmation – the Aroon Up line, dots, or histogram must have crossed over from below to above the Aroon Down line, dots, or histogram.

The confirmation is not complete until the Aroon Up component reads above 70 as the Aroon Down component reads below 30.

Once those readings are met, the bullish signal is completely confirmed.

• Bearish signal confirmation – the Aroon Down line, dots, or histogram must have crossed over from below to above the Aroon Up line, dots, or histogram.

The confirmation is not complete until the Aroon Down component reads above 70 as the Aroon Up component reads below 30.

Once those readings are met, the bearish signal is completely confirmed.

Step 3 – Entry.

Enter a buy position following a confirmed bullish signal and a sell position following a confirmed bearish signal.

Step 4 – Exit.

Exit the buy position in case the Aroon Up component crosses over from above to below the Down component.

On the contrary, exit the sell position in case the Aroon Down component crosses over from above to below the Up component.

5. The Aroon-Williams %R Trading Strategy.

What is the Williams %R?

Williams %R stands for Williams Percent Range.

The Williams Percent Range is a technical indicator that compares the closing price of an asset to the high – low range over a given number of periods.

By doing so, the indicator acts to measure and show the price momentum with which price reversals occur.

The tool also measures the price momentum of the price of a continuing trend, not necessarily a trend reversal.

The Williams %R comprises the following components:

• A central -50 level acting as a zero line.
• The upper limit (-20).
• Lower limit (-80).
• A curve, area, dots, or histogram moving along the scale which runs from -100 to 0.

Basically, a cross of the Williams %R curve, area, dots, or histogram from below to above the -50 level is indicative of upward price momentum.

However, a cross of the Williams %R curve, area, dots, or histogram from above to below the -50 level indicates a downward price momentum.

If the price is below the lower limit (-80) and crosses the limit rapidly upwards, then the price has reversed upwards with a huge momentum.

It is likely to sustain such upward momentum for a while enough to profit.

That is called an oversold condition.

On the other hand, if the price is above the upper limit (-20) and crosses the limit rapidly downwards, then the price has reversed downwards with remarkable momentum.

The price is likely to sustain such downward momentum for a while enough to profit.

That is called an overbought condition.

 

The Strategy.

Step 1 – Signal.

The first step of this strategy is the identification of trading signals. The signals here will be obtained using the Williams %R as follows:

• Bullish signal – the Williams %R curve, area, dots, or histogram must be reading below the lower limit (-80).

The Williams %R curve, area, dots, or histogram which is below the lower limit (-80) must cross the limit rapidly upwards.

• Bearish signal – the Williams %R curve, area, dots, or histogram must be reading above the upper limit (-20).

The Williams %R curve, area, dots, or histogram which is above the upper limit (-20) must cross the limit rapidly downwards.

Step 2 – Confirmation.

Next, you must subject your signal to a confirmation. You should do that using the Aroon indicator. Here is how the confirmation works:

• Bullish signal confirmation – the Aroon Up line, dots, or histogram must have crossed over from below to above the Aroon Down line, dots, or histogram.

The confirmation is not complete until the Aroon Up component reads above 70 as the Aroon Down component reads below 30.

Once those readings are met, the bullish signal is completely confirmed.

• Bearish signal confirmation – the Aroon Down line, dots, or histogram must have crossed over from below to above the Aroon Up line, dots, or histogram.

The confirmation is not complete until the Aroon Down component reads above 70 as the Aroon Up component reads below 30.

Once those readings are met, the bearish signal is completely confirmed.

Step 3 – Entry.

Enter a buy position following a confirmed bullish signal and a sell position following a confirmed bearish signal.

Step 4 – Exit.

Exit the buy position in case the Aroon Up component crosses over from above to below the Down component.

Conversely, exit the sell position in case the Aroon Down component crosses over from above to below the Up component.

Or, just exit the buy position once the Williams %R curve, area, dots or histogram dips below -50 from above.

If you are in a sell position, exit if the Williams %R curve, area, dots, or histogram rises above -50 from below.