What Is the Aroon Oscillator?

The Aroon Oscillator is a trend-following indicator that uses aspects of the Aroon Indicator (Aroon Up and Aroon Down) to gauge the strength of a current trend and the likelihood that it will continue.

Understanding the Aroon Oscillator

Aroon oscillator readings above zero indicate that an uptrend is present, while readings below zero indicate that a downtrend is present. Traders watch for zero line crossovers to signal potential trend changes. They also watch for big moves, above 50 or below -50 to signal strong price moves.

The Aroon Oscillator was developed by Tushar Chande in 1995 as part of the Aroon Indicator system. Chande’s intention for the system was to highlight short-term trend changes. The name Aroon is derived from the Sanskrit language and roughly translates to “dawn’s early light.”

The Aroon Indicator system includes Aroon Up, Aroon Down, and Aroon Oscillator. The Aroon Up and Aroon Down lines must be calculated first before drawing the Aroon Oscillator. This indicator typically uses a timeframe of 25 periods, however, the timeframe is subjective. Using more periods garners fewer waves and a smoother-looking indicator. Using fewer periods generates more waves and a quicker turnaround in the indicator. The oscillator moves between -100 and 100. A high oscillator value is an indication of an uptrend while a low oscillator value is an indication of a downtrend.

Aroon Up and Aroon Down move between zero and 100. On a scale of zero to 100, the higher the indicator’s value, the stronger the trend. For example, a price reaching new highs one day ago would have an Aroon Up value of 96 ((25-1)/25)x100). Similarly, a price reaching new lows one day ago would have an Aroon Down value of 96 ((25-1)x100).

The highs and lows used in the Aroon Up and Aroon Down calculations help to create an inverse relationship between the two indicators. When the Aroon Up value increases, the Aroon Down value will typically see a decrease and vice versa.

When Aroon Up remains high from consecutive new highs, the oscillator value will be high, following the uptrend. When a security’s price is on a downtrend with many new lows, the Aroon Down value will be higher resulting in a lower oscillator value.

The Aroon Oscillator line can be included with or without the Aroon Up and Aroon Down when viewing a chart. Significant changes in the direction of the Aroon Oscillator can help to identify a new trend.

Aroon Oscillator Formula and Calculation

The formula for the Aroon oscillator is:

$\begin{aligned} &\text{Aroon Oscillator}=\text{Aroon Up}-\text{Aroon Down}\\ &\text{Aroon Up}=100*\frac{\left(25 – \text{Periods Since 25-Period High}\right)}{25}\\ &\text{Aroon Down}=100*\frac{\left(25 – \text{Periods Since 25-Period Low}\right)}{25}\\ \end{aligned}$​Aroon Oscillator=Aroon Up−Aroon DownAroon Up=100∗25(25−Periods Since 25-Period High)​Aroon Down=100∗25(25−Periods Since 25-Period Low)​​

To calculate the Aroon oscillator:

1. Calculate Aroon Up by finding how many periods it has been since the last 25-period high. Subtract this from 25, then divide the result by 25. Multiply by 100.
2. Calculate Aroon Down by finding how many periods it has been since the last 25-period low. Subtract this from 25, then divide the result by 25. Multiply by 100.
3. Subtract Aroon Down from Aroon Up to get the Aroon Oscillator value.
4. Repeat the steps as each time period ends.

Aroon oscillator differs from the rate of change (ROC) indicator in that the former is tracking whether a 25-period high or low occurred more recently while the latter tracks the momentum by looking at highs and lows and how far the current price has moved relative to a price in the past.

Aroon Oscillator Trade Signals

The Aroon Oscillator can generate trade signals or provide insight into the current trend direction of an asset.

When the oscillator moves above the zero line, the Aroon Up is crossing above the Aroon Down and the price has made a high more recently than a low, a sign that an uptrend is beginning.

When the oscillator moves below zero, the Aroon Down is crossing below the Aroon Up. A low occurred more recently than a high, which could signal that a downtrend is starting.

Limitations of Using the Aroon Oscillator

The Aroon Oscillator keeps a trader in a trade when a long-term trend develops. During an uptrend, for example, the price tends to keep achieving new highs which keep the oscillator above zero.

During choppy market conditions, the indicator will provide poor trade signals, as the price and the oscillator whipsaw back and forth.

The indicator may provide trade signals too late to be useful. The price may have already run a significant course before a trade signal develops. The price may be due for a retracement when the trade signal is appearing.

The number of periods is also arbitrary and there is no validity that a more recent high or low within the last 25-periods will guarantee a new and sustained uptrend or downtrend.

The indicator is best used in conjunction with price action analysis fundamentals of long-term trading, and other technical indicators.

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What Is an Ascending Triangle?

An ascending triangle is a chart pattern used in technical analysis. It is created by price moves that allow for a horizontal line to be drawn along the swing highs and a rising trendline to be drawn along the swing lows. The two lines form a triangle. Traders often watch for breakouts from triangle patterns. The breakout can occur to the upside or downside.

Ascending triangles are often called continuation patterns since price will typically break out in the same direction as the trend that was in place just prior to the triangle forming.

An ascending triangle is tradable in that it provides a clear entry point, profit target, and stop-loss level. It may be contrasted with a descending triangle.

What Does the Ascending Triangle Tell You?

An ascending triangle is generally considered to be a continuation pattern, meaning that the pattern is significant if it occurs within an uptrend or downtrend. Once the breakout from the triangle occurs, traders tend to aggressively buy or sell the asset depending on which direction the price broke out.

Increasing volume helps to confirm the breakout, as it shows rising interest as the price moves out of the pattern.

A minimum of two swing highs and two swing lows are required to form the ascending triangle’s trendlines. But a greater number of trendline touches tends to produce more reliable trading results. Since the trendlines are converging on one another, if the price continues to move within a triangle for multiple swings, the price action becomes more coiled, likely leading to a stronger eventual breakout.

Volume tends to be stronger during trending periods than during consolidation periods. A triangle is a type of consolidation, and therefore volume tends to contract during an ascending triangle. As mentioned, traders look for volume to increase on a breakout, as this helps confirm the price is likely to keep heading in the breakout direction. If the price breaks out on low volume, that is a warning sign that the breakout lacks strength. This could mean the price will move back into the pattern. This is called a false breakout.

For trading purposes, an entry is typically taken when the price breaks out. Buy if the breakout occurs to the upside, or short/sell if a breakout occurs to the downside. A stop loss is placed just outside the opposite side of the pattern. For example, if a long trade is taken on an upside breakout, a stop loss is placed just below the lower trendline.

A profit target can be estimated based on the height of the triangle added or subtracted from the breakout price. The thickest part of the triangle is used. If the triangle is $5 high, add $5 to the upside breakout point to get the price target. If the price breaks lower, the profit target is the breakout point less $5.

Example of How to Interpret the Ascending Triangle

Here an ascending triangle forms during a downtrend, and the price continues lower following the breakout. Once the breakout occurred, the profit target was attained. The short entry or sell signal occurred when the price broke below the lower trendline. A stop loss could be placed just above the upper trendline.

Wide patterns like this present a higher risk/reward than patterns that get substantially narrower as time goes on. As a pattern narrows, the stop loss becomes smaller since the distance to the breakout point is smaller, yet the profit target is still based on the largest part of the pattern.

The Difference Between an Ascending Triangle and a Descending Triangle

These two types of triangles are both continuation patterns, except they have a different look. The descending triangle has a horizontal lower line, while the upper trendline is descending. This is the opposite of the ascending triangle, which has a rising lower trendline and a horizontal upper trendline.

Limitations of Trading the Ascending Triangle

The main problem with triangles, and chart patterns in general, is the potential for false breakouts. The price may move out of the pattern only to move back into it, or the price may even proceed to break out the other side. A pattern may need to be redrawn several times as the price edges past the trendlines but fails to generate any momentum in the breakout direction.

While ascending triangles provide a profit target, that target is just an estimate. The price may far exceed that target, or fail to reach it.

Psychology of the Ascending Triangle

Like other chart patterns, ascending triangles indicate the psychology of the market participants underlying the price action. In this case, buyers repeatedly drive the price higher until it reaches the horizontal line at the top of the ascending triangle. The horizontal line represents a level of resistance—the point where sellers step in to return the price to lower levels.

As the price drops downward from the horizontal resistance level, buyers begin to show their resolve, and the price fails to reach the recent low, with the trend turning upward once again at a higher swing low. In other words, the upward-sloping trendline that forms the lower boundary of the ascending triangle is acting as support—the level where buyers jump in and prevent the price from falling any lower.

In a well-defined ascending triangle pattern, the price bounces between the horizontal resistance line and the lower trendline. The lines of the triangle eventually converge, setting the stage for a showdown between upward and downward pressure that could determine which direction the price will move out of the pattern. As it approaches the vertex of the triangle, the price will either break out above the resistance level, suggesting additional gains ahead, or it will fall below the support level, increasing the likelihood that the price will decline.

The Bottom Line

An ascending triangle is a technical analysis chart pattern that occurs when the price of an asset fluctuates between a horizontal upper trendline and an upward-sloping lower trendline. Since the price has a tendency to break out in the same direction as the trend in place before the formation of the triangle, ascending triangles are often called continuation patterns. Traders often wait for the price to break above or below the pattern before entering a position. The ascending triangle pattern is particularly useful for traders because it suggests a clear entry point, profit target, and stop-loss level.

What Is the Aroon Indicator?

The Aroon indicator is a technical indicator that is used to identify trend changes in the price of an asset, as well as the strength of that trend. In essence, the indicator measures the time between highs and the time between lows over a time period. The idea is that strong uptrends will regularly see new highs, and strong downtrends will regularly see new lows. The indicator signals when this is happening, and when it isn’t.

The indicator consists of the “Aroon up” line, which measures the strength of the uptrend, and the “Aroon down” line, which measures the strength of the downtrend.

The Aroon indicator was developed by Tushar Chande in 1995.

Formulas for the Aroon Indicator


$\begin{aligned} \text{Aroon Up}&= \frac{25-\text{Periods Since 25 period High}}{25} \ast100\\ \text{Aroon Down}&=\frac{25-\text{Periods Since 25 period Low}}{25}\ast100 \end{aligned}$Aroon UpAroon Down​=2525−Periods Since 25 period High​∗100=2525−Periods Since 25 period Low​∗100​

How to Calculate the Aroon Indicator

The Aroon calculation requires the tracking of the high and low prices, typically over 25 periods.

1. Track the highs and lows for the last 25 periods on an asset.
2. Note the number of periods since the last high and low.
3. Plug these numbers into the Up and Down Aroon formulas.

What Does the Aroon Indicator Tell You?

The Aroon Up and the Aroon Down lines fluctuate between zero and 100, with values close to 100 indicating a strong trend and values near zero indicating a weak trend. The lower the Aroon Up, the weaker the uptrend and the stronger the downtrend, and vice versa. The main assumption underlying this indicator is that a stock’s price will close regularly at new highs during an uptrend, and regularly make new lows in a downtrend.

The indicator focuses on the last 25 periods, but is scaled to zero and 100. Therefore, an Aroon Up reading above 50 means the price made a new high within the last 12.5 periods. A reading near 100 means a high was seen very recently. The same concepts apply to the Down Aroon. When it is above 50, a low was witnessed within the 12.5 periods. A Down reading near 100 means a low was seen very recently.

Crossovers can signal entry or exit points. Up crossing above Down can be a signal to buy. Down crossing below Up may be a signal to sell.

When both indicators are below 50 it can signal that the price is consolidating. New highs or lows are not being created. Traders can watch for breakouts as well as the next Aroon crossover to signal which direction price is going.

Example of How to Use the Aroon Indicator

The following chart shows an example of the Aroon indicator and how it can be interpreted.

In the chart above, there is both the Aroon indicator and an oscillator that combines both lines into a single reading of between 100 and -100. The crossover of the Aroon Up and Aroon Down indicated a reversal in the trend. While the index was trending, prior to the reversal, the Aroon Down remained very low, suggesting that the index had a bullish bias. Despite the rally on the far right, the Aroon indicator hasn’t shown a bullish bias yet. This is because the price rebounded so quickly that it hasn’t made a new high in the last 25 periods (at the time of the screenshot), despite the rally.

The Difference Between the Aroon Indicator and the Directional Movement Index (DMI)

The Aroon indicator is similar to the Directional Movement Index (DMI) developed by Welles Wilder. It too uses up and down lines to show the direction of a trend. The main difference is that the Aroon indicator formulas are primarily focused on the amount of time between highs and lows. The DMI measures the price difference between current highs/lows and prior highs/lows. Therefore, the main factor in the DMI is price, and not time.

Limitations of Using the Aroon Indicator

The Aroon indicator may at times signal a good entry or exit, but other times it will provide poor or false signals. The buy or sell signal may occur too late, after a substantial price move has already occurred. This happens because the indicator is looking backwards, and isn’t predictive in nature.

A crossover may look good on the indicator, but that doesn’t mean the price will necessarily make a big move. The indicator isn’t factoring the size of moves, it only cares about the number of days since a high or low. Even if the price is relatively flat, crossovers will occur as eventually a new high or low will be made within the last 25 periods. Traders still need to use price analysis, and potentially other indicators, to make informed trading decisions. Relying solely on one indicator isn’t advised.

What Is Aggregate Demand?

Aggregate demand is a measurement of the total amount of demand for all finished goods and services produced in an economy. Aggregate demand is commonly expressed as the total amount of money exchanged for those goods and services at a specific price level and point in time.

Understanding Aggregate Demand

Aggregate demand is a macroeconomic term and can be compared with the gross domestic product (GDP). GDP represents the total amount of goods and services produced in an economy while aggregate demand is the demand or desire for those goods. Aggregate demand and GDP commonly increase or decrease together.

Aggregate demand equals GDP only in the long run after adjusting for the price level. Short-run aggregate demand measures total output for a single nominal price level without adjusting for inflation. Other variations in calculations can occur depending on the methodologies used and the various components.

Aggregate demand consists of all consumer goods, capital goods, exports, imports, and government spending programs. All variables are considered equal if they trade at the same market value.

Aggregate Demand Components

Aggregate demand is determined by the overall collective spending on products and services by all economic sectors on the procurement of goods and services by four components:

Consumption Spending

Consumer spending represents the demand by individuals and households within the economy. While there are several factors in determining consumer demand, the most important is consumer incomes and the level of taxation.

Investment Spending

Investment spending represents businesses’ investment to support current output and increase production capability. It may include spending on new capital assets such as equipment, facilities, and raw materials.

Government Spending

Government spending represents the demand produced by government programs, such as infrastructure spending and public goods. This does not include services such as Medicare or social security, because these programs simply transfer demand from one group to another.

Net Exports

Net exports represent the demand for foreign goods, as well as the foreign demand for domestic goods. It is calculated by subtracting the total value of a country’s exports from the total value of all imports.

Aggregate Demand Formula

The equation for aggregate demand adds the amount of consumer spending, investment spending, government spending, and the net of exports and imports. The formula is shown as follows:

$\begin{aligned} &\text{Aggregate Demand} = \text{C} + \text{I} + \text{G} + \text{Nx} \\ &\textbf{where:}\\ &\text{C} = \text{Consumer spending on goods and services} \\ &\text{I} = \text{Private investment and corporate spending on} \\ &\text{non-final capital goods (factories, equipment, etc.)} \\ &\text{G} = \text{Government spending on public goods and social} \\ &\text{services (infrastructure, Medicare, etc.)} \\ &\text{Nx} = \text{Net exports (exports minus imports)} \\ \end{aligned}$​Aggregate Demand=C+I+G+Nxwhere:C=Consumer spending on goods and servicesI=Private investment and corporate spending onnon-final capital goods (factories, equipment, etc.)G=Government spending on public goods and socialservices (infrastructure, Medicare, etc.)Nx=Net exports (exports minus imports)​

The aggregate demand formula above is also used by the Bureau of Economic Analysis to measure GDP in the U.S.

What Affects Aggregate Demand?

Interest Rates

Interest rates affect decisions made by consumers and businesses. Lower interest rates will lower the borrowing costs for big-ticket items such as appliances, vehicles, and homes and companies will be able to borrow at lower rates, often leading to capital spending increases. Higher interest rates increase the cost of borrowing for consumers and companies and spending tends to decline or grow at a slower pace.

Income and Wealth

As household wealth increases, aggregate demand typically increases. Conversely, a decline in wealth usually leads to lower aggregate demand. When consumers are feeling good about the economy, they tend to spend more and save less.

Inflation Expectations

Consumers who anticipate that inflation will increase or prices will rise tend to make immediate purchases leading to rises in aggregate demand. But if consumers believe prices will fall in the future, aggregate demand typically falls.

Currency Exchange Rates

When the value of the U.S. dollar falls, foreign goods will become more expensive. Meanwhile, goods manufactured in the U.S. will become cheaper for foreign markets. Aggregate demand will, therefore, increase. When the value of the dollar increases, foreign goods are cheaper and U.S. goods become more expensive to foreign markets, and aggregate demand decreases.

Economic Conditions and Aggregate Demand

Economic conditions can impact aggregate demand whether those conditions originated domestically or internationally. The financial crisis of 2007-08, sparked by massive amounts of mortgage loan defaults, and the ensuing Great Recession, offer a good example of a decline in aggregate demand due to economic conditions.

With businesses suffering from less access to capital and fewer sales, they began to lay off workers and GDP growth contracted in 2008 and 2009, resulting in a total production contraction in the economy during that period. A poor-performing economy and rising unemployment led to a decline in personal consumption or consumer spending. Personal savings also surged as consumers held onto cash due to an uncertain future and instability in the banking system.

In 2020, the COVID-19 pandemic caused reductions in both aggregate supply or production, and aggregate demand or spending. Social distancing measures and concerns about the spread of the virus caused a significant decrease in consumer spending, particularly in services as many businesses closed. These dynamics lowered aggregate demand in the economy. As aggregate demand fell, businesses either laid off part of their workforces or otherwise slowed production as employees contracted COVID-19 at high rates.

Aggregate Demand vs. Aggregate Supply

In times of economic crises, economists often debate as to whether aggregate demand slowed, leading to lower growth, or GDP contracted, leading to less aggregate demand. Whether demand leads to growth or vice versa is economists’ version of the age-old question of what came first—the chicken or the egg.

Boosting aggregate demand also boosts the size of the economy regarding measured GDP. However, this does not prove that an increase in aggregate demand creates economic growth. Since GDP and aggregate demand share the same calculation, it only indicates that they increase concurrently. The equation does not show which is the cause and which is the effect.

Early economic theories hypothesized that production is the source of demand. The 18th-century French classical liberal economist Jean-Baptiste Say stated that consumption is limited to productive capacity and that social demands are essentially limitless, a theory referred to as Say’s Law of Markets.

Say’s law, the basis of supply-side economics, ruled until the 1930s and the advent of the theories of British economist John Maynard Keynes. By arguing that demand drives supply, Keynes placed total demand in the driver’s seat. Keynesian macroeconomists have since believed that stimulating aggregate demand will increase real future output and the total level of output in the economy is driven by the demand for goods and services and propelled by money spent on those goods and services.

Keynes considered unemployment to be a byproduct of insufficient aggregate demand because wage levels would not adjust downward fast enough to compensate for reduced spending. He believed the government could spend money and increase aggregate demand until idle economic resources, including laborers, were redeployed.

Other schools of thought, notably the Austrian School and real business cycle theorists stress consumption is only possible after production. This means an increase in output drives an increase in consumption, not the other way around. Any attempt to increase spending rather than sustainable production only causes maldistribution of wealth or higher prices, or both.

As a demand-side economist, Keynes further argued that individuals could end up damaging production by limiting current expenditures—by hoarding money, for example. Other economists argue that hoarding can impact prices but does not necessarily change capital accumulation, production, or future output. In other words, the effect of an individual’s saving money—more capital available for business—does not disappear on account of a lack of spending.

The Bottom Line

Aggregate demand is a concept of macroeconomics that represents the total demand within an economy for all kinds of goods and services at a certain price point. In the long term, aggregate demand is indistinguishable from GDP. However, aggregate demand is not a perfect metric and it is the subject of debate among economists.