Friday, October 4th, 2013 by Tim Lanoue
Trading online can bring the desperateness out of many novice traders and out of desperation results the will to find the one strategy that will consistently rack winning trades. However, the chances of finding that one strategy are rare so many traders rely on a combination of trading indicators to formulate a unique trading strategy. Perhaps a useful trading indicator that should be considered would be the Aroon Oscillator.
Aroon Oscillator Real Examples
The Aroon Oscillator is a trend measuring indicator that is composed of two components known as Aroon Up and Aroon Down. The Aroon Up component is responsible for measuring the strength of an uptrend while the Aroon Down component is responsible for gauging the strength of a downtrend. In the picture below you can see the Aroon Oscillator in use and differentiate between the Up and Down Aroon. If you are unfamiliar with live trading charts or where to find free indicators to use Freestockcharts.com offers a free chart along with the ability to add trading indicators.
The Aroon Oscillator is formulated by the subtraction of the Aroon Up and Aroon Down. In non-technical terms this simply means that the Aroon Oscillator determines the overall direction of a trend by subtracting the markets sell orders from the buy orders. On the chart if the Aroon Up is reaching higher that tells us that there is a strong uptrend in play whereas if the Aroon Down is reaching lower it symbolizes a stronger downtrend. An Aroon Up or Down is indicated by if the bars are above or below the level zero.
Aroon Oscillator Strategy
One simple strategy that experienced traders use with Aroon Oscillator would be watching for the Aroon Oscillator to cross above zero to indicate a new uptrend where a call trade could be placed. Likewise, a cross below zero may indicator a new downtrend where a put trade could be placed. When the market is flat you may see the Aroon Oscillator hugging the zero level indicating there is no strong trend in either direction, when this is present it is best to avoid trading that day.
In the picture below you can see how we would find solid entry positions along with how to use the indicator. For example, the rectangle to the far left has the Aroon Oscillator crossing zero in an upward motion, when it crosses zero positively and the candle closes on the asset then we place a call trade. Conversely, in the rectangle second from the left we have the Aroon Oscillator crossing zero in a downward motion, indicating a change in the assets trend. Once your candle closes place a put trade on the next candle. In this instance all set ups presented to us resulted in winning trades.
To conclude, the Aroon Oscillator can serve as a helpful indicator that may help increase the success rate of any trader’s portfolio. This indicator may be used by itself but it may prove more helpful in combination with other indicators. Being able to gauge the strength of a trend is a significant advantage which is why the Aroon Oscillator is a great indicator. If you have any questions, comments or suggestions please feel free to leave a comment below and make sure to visit the complete list of Binary Options Indicators!