The Aroon indicator on M5

[Fairman]

The Aroon indicator on M5

Aroon doesn't get much attention in scalping circles, but it measures something useful in a straightforward way. It looks at how many bars have passed since the highest high and the lowest low over a set period, and turns that into two lines from 0 to 100. Aroon Up is high when a recent bar made the period high. Aroon Down is high when a recent bar made the period low.

On M5 with the default period of 25, that's roughly the last two hours. If Aroon Up is near 100 and Aroon Down is low, price has been making fresh highs recently and not fresh lows. That's a simple description of an uptrend in progress.

What I like is that it reacts to the timing of highs and lows, not to their size. A moving average can stay sloped up long after the trend stopped making new highs. Aroon drops as soon as the last high gets old. So it tells you quickly when a trend has stalled, even if price hasn't fallen.

How I use it: when both lines are low, price hasn't made a new high or low recently, which usually means a range. I avoid breakout trades then. When one line is near 100 and the other is low, I look for pullback entries in that direction. A crossover by itself isn't something I trade.

[FXS HongKong Scalper]

Aroon is a nice choice because it is about time, not distance. On M5 I find it helpful to look at the crossover of the two lines together with the session. A cross during the quiet Asian afternoon often means very little, since a small range can produce new highs and lows without a real move. A cross near the London open with Aroon Up going to 100 means fresh highs are being made when volume is rising. Combining the indicator with a simple time filter removes many of the false signals in quiet hours.

[Fairman]

The period setting changes everything. With 25 on M5 you're covering a couple of hours. A shorter period like 14 makes it react faster but flips more often, which on M5 can be too jumpy. I'd match the period to how long a typical move lasts in your session. If London trends tend to run for about an hour, a period of around 12 to 15 bars on M5 fits that better. A quick way to choose is to measure how many M5 bars a typical London push lasts on your pair, then set the period close to that. It keeps the indicator tied to the moves you actually trade.

[Fairman]

There's also an Aroon Oscillator, which is just Aroon Up minus Aroon Down, giving one line between minus 100 and plus 100. It's easier to read at a glance but you lose the detail of the two lines. I prefer the two lines because a situation where both are low tells you something different from one where both are middling, and the oscillator shows both as close to zero. Some traders use the oscillator crossing zero as a trend change. On M5 that happens often enough to be noisy, so I treat it as background information rather than a signal.

[Fairman]

Aroon works badly in choppy markets that keep making marginal new highs and lows. In a wide range where price touches the top and bottom in turn, Aroon swings between extremes and gives the impression of trends that don't exist. That's why I pair it with a look at the actual price structure. If the highs being made are only a pip above the previous ones, the Aroon signal is weaker than it looks. Pairing it with a simple look at swing points on the chart fixes most of this. If the new highs are meaningful, the Aroon reading means more.

[Fairman]

A use I've seen others mention is spotting the start of a new trend when one line rises from low values to 100 while the other drops. That happens when price breaks out of a range to a new high for the period. It's a lagging confirmation of a breakout, nothing more. Still, it's a clean way to tell when the market has moved from a range to directional movement. Where it's handy is in deciding when to stop fading the edges of a range. When Aroon starts showing a clean directional reading after a long flat period, I take that as a cue to stop mean reversion trades for the session. It's a small decision, but making it based on a clear reading instead of a feeling saves a lot of frustrating trades against a new trend.