The Aroon Oscillator is calculated by subtracting Aroon Down from the Aroon Up indicator. It is interpreted as follows:
- Above 50 is considered a strong uptrending market
- Below -50 means that the market is trending lower ;
- Near 0 means that the market is in transition and not trending .
The chart below of the mini-Dow Futures contract shows both the Aroon indicator and the Aroon Oscillator:
The chart below of the Gold futures contract shows how the Aroon Oscillator is interpreted:
A decrease of the Aroon Oscillator from above the 50 line shows that the uptrend is consolidating and is reversing direction downward. When the Aroon Oscillator hovers around the zero line over time, then the market is in a directionless period.
When the oscillator moves toward -50 from the zero line, the market is beginning to trend downward. And when the Aroon Oscillator is below -50, then the market is in a strong downtrend.
When the oscillator begins to move upward towards the zero line, the downward trend is slowing down and beginning to reverse direction.
In addition, when the Aroon Oscillator moves higher from the zero line, then the market is moving from a period of non-trending to a period of uptrending.
The Aroon indicator and Aroon Oscillator are extremely helpful tools for a trader to have and use; the Aroon indicator helps traders to determine when best to apply trending following indicators like Moving Averages (see: Moving Averages ) and when best to use oscillator type technical indicators like Stochastics (see: Stochastics ).