A trading system based on Aroon
Last updated
Last updated
This indicator has been designed by Tushar Chande in 1995.
The gray line indicates the AroonUp, the red line indicates the AroonDown. The AroonUp shows the number of bars since a new maximum price value has been reached. (N the number of bars – H the number of bars after a new maximum) / N the number of bars) * 100%. N is a value of the indicator period, Н is the number of bars after a new maximum price value has been reached in the selected period. After the price has reached a new maximum value, the AroonUp is equal to 100% again. The AroonDown shows the number of bars since a new minimum price value has been reached. (The number of bars – the number of bars after a new minimum price value / the number of bars) * 100. Let’s have a look. If AroonUp is higher than the AroonDown we have a bull signal.
If the AroonUp is under the AroonDown – it is a bear signal. If the AroonUp and the AroonDown are almost equal, we can call it a consolidation period
The consolidation filter is based on the difference of two indicators. The higher the parameter value is, the stronger is the expected indicator signal to enter a position. Let’s exit our position using the feedback signals.
We can use the consolidation filter to exit our position. I used it in an additional formula, you can also add this condition to exit a position. Optimization done on the Tesla instrument showed a value of 300 for the Aroon (their parameters are bound) and 62% for consolidation. Optimization shows that if the difference between the values of the indicators is beyond 62% range, the strategy shows the best profitability.
This strategy is just an example and has been built for TSLab beginners.
Good luck!
Download the file. Click Lab in TSLab main menu, then choose Script manager. Click the Load from file button.
