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AROON Trading - Best Money Indicator for Trend Traders Tested 100 times... - Forex Day Trading - YouTube
Channel: TRADING RUSH
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If you are struggling to find the strength
of a trend, or can't figure out if the price
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is in a range or not,聽the Aroon indicator
is right for you. Trend is where most money
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is made. So聽Aroon indicator can be very useful聽to
determine whether a stock or Forex pair is
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trending or is in a range. When Tushar Chande
created this indicator in 1995, it was mostly
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used to find the beginning of a new trend.
Since then, traders have learnt to use it
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in different ways, and have created many different
strategies around it. In this video, you will
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learn about the aroon indicator, how to use
it to find more about a trend. Furthermore,
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I have also tested one of the aroon trading
strategy one hundred times, to find if the
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Indicator works as an entry signal generator
or not.
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So if you want to know if the aroon strategy聽is
a profitable strategy, stick around, after
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all you don't want to risk your money on an
indicator that doesn't even work. And if you
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are watching the Trading Rush聽channel for
the first time, also聽check out other videos
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on this channel, where we tested bunch of
other indicators 100 times to find their real
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win rates.
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This is how the aroon indicator looks like.
On trading View, this indicator will come
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with the default length of 14. If it is different
for you on your charting platform, just remember
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I have tested this indicator 100 times with
these default settings.
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As you can see, the aroon indicator will come
with 2 lines. One will be the aroon up line.
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And other one will be the aroon down line.
Now, on trading View, these lines are orange
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and blue in color. So to keep things less
confusing, I have, and you should probably
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change it to green and red color respectively.
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On the right hand side of this indicator,
you will see some values ranging from 0 to
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100 percent. These are the values that we
are going to use to find the strength of a
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trend.
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Here's how most traders use the Aroon聽indicator.
It's a bullish trend, when the aroon up is
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above 70, and aroon down is below 30. Similarly,
it's a bearish trend, when aroon down is above
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70, and aroon up is below 30.
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Now one thing to note here is, the bullish
and bearish signals are generated by looking
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at the aroon line that is at the top. Some
beginner traders get confused, and take short聽trades
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when aroon down line is at the bottom. The
bearish trend signal is only generated when
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the aroon down line is above the 70 percent
level.
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Now one of the best part about the aroon indicator,
is that it helps to identify the range market.
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Most new traders lose money in a range market,
so indicators like these really come in handy.
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When the aroon up and aroon down lines are
parallel to each other, the market is said
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to be in a range. It means that there is no
trend going on. And if you are a new trader,
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you should probably avoid taking new positions.
Other ways to identify the strength of a trend,
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is to look at the two aroon lines. If aroon
lines are far away from each other, there
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is a strong trend going on. And if they are
very聽close to each other, the price is probably
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consolidating at the moment.
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Now like I said, the聽Aroon indicator is really
good when it comes to identifying the trending
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and ranging market, especially for a beginner.
But just like other indicators,聽people have
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found new ways to use this indicator, as an
entry signal generator.
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In this video, I聽have tested this 100 times,
using one of the popular aroon trading strategy.
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Here's how the strategy goes.
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The buy entry signal is generated, when the
aroon up is touching the 100 percent mark,
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and aroon down is at 0 percent. Similarly,
the sell signal is generated, when the aroon
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down is at 100, and aroon up is touching the
0 percent mark.
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Some people also use 70 and 30 levels to buy
and sell, but those levels generate a lot
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of false signals. So i have used 100 and 0
levels to backtest, instead of 70 and 30.
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But if you have been watching the Trading
Rush channel for a while, you can tell,聽that
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this setup on its own can't make money, because
there is no way to identify the direction
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of the long term trend. If you trade on a
smaller timeframe, you should always pay attention
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to the trend direction of the higher timeframe.
Otherwise you will take trades in the opposite
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direction of the long term trend.
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The easiest way to identify the long term
trend direction, is to use the 200 period
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moving average. If price is above it. It's
an up trend. If price is below it, it's a
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down trend.
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So here's how the complete modified aroon
strategy goes.
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We will聽only buy,聽when the aroon up is at
100,聽and aroon down is at 0, and the signal
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is generated when the price is above the 200
period moving average.
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And we will only sell, when the aroon down
is at 100, and aroon up is at 0, and price
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is below the 200 period moving average.
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Since aroon indicator doesn't give information
about setting the stoploss, I have used the
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parabolic sar indicator to set the stoploss
while testing the aroon indicator 100 times.
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Parabolic sar is an excellent indicator. If
you have never heard about it, check out the
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parabolic sar video聽on the Trading Rush channel.
And i have also tested that indicator 100
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times to find its real win rate. You can find
that video on the Official Trading Rush Website.
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So, I tested aroon trading strategy one hundred
times, here's what happened. You can slow
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the backtesting clip, if you want to see each
trade carefully.
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I'm using the official聽trading rush app for
backtesting. You can use it while testing
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your strategy as well. It will help you聽keep
track of your trades,聽and will calculate
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everything in just one click.聽You can find
it on the Play Store, or you can use the link
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in the description.
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While the backtesting clip is running,聽here
are some important points, advantages and
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disadvantages I found about the aroon indicator,聽while
testing it 100 times.
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Number 1. When the aroon lines were separated
and were聽far away from each other, the trend
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that was going on was strong. Most of the
time, there was no consolidation when the
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aroon indicator was indicating a trend. When
price was in a range, the aroon lines were
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not on the opposite end of the Indicator.
They were intersecting multiple times in a
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short time period. What this means is, the
aroon indicator works great if you only聽use
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it聽to determine the strength of a trend,
and to find if the market is ranging or not.
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Number 2. The aroon indicator, worked great
as an entry signal generator. Some trades
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I found were at a start of a new trend, or
right at the correct end of a pull back. But
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there is one problem with aroon indicator
that kept turning the profit into a loss.
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Number 3. The biggest drawback of this Aroon
Setup, is that the aroon indicator doesn't
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know when the trend is coming to an end, or
is stretched out too much. And it's okay,
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because aroon is made to find the start of
a new trend, and not the end. Most of the
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trades I lost while testing it 100 times,
where at the end of the trend, where there
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were other signals of reversals. This could
be easily avoided. To avoid taking trades
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at the end of a trend, you can use other indicators
that do that job perfectly. I have made videos
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on these types of indicators on this聽Trading
Rush channel. Check it out if you want. The
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best part about the MACD indicator video was
one of them.
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So, after testing the aroon indicator as an
entry signal generator, here's what I found.
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The win rate of aroon indicator is approximately
40 percent. Since I tested other indicators
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with 1.5 to 1 reward risk ratio, on聽30 mins,
and on Euro JPY pair, I have used the same
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criteria to test this Indicator as well. There
were many other indicator that performed way聽better,
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than what the聽aroon indicator performed here.
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This strategy is a hit or miss strategy. In
this backtest, the Aroon indicator didn't
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lose money, but didn't make money either.
The maximum number of winners I got in a row
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were 4, and maximum number of losses in a
row were 9. At one point, this strategy did
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make 1350 dollars. But then everything went
downhill, and the 1350 disappeared as i took
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more trades.
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If you are thinking about聽trading using the
Aroon indicator, remember, Aroon is good when
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it comes to identifying the strength of a
trend, or to determine of the market is in
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a range or not. When it comes to taking trades
only聽based on entry signals given by the
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aroon indicator, you are better off with some
other indicator.
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I have tested many other indicators 100 times
of this channel, some of them had excellent
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win rates. If you want, you can watch them
in the Trading Rush App, or on the Trading
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Rush Website, and some of them are still here
on this Trading聽Rush聽channel.
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That's all. Like the video if you liked it.
Subscribe if you want to see more trading
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strategies tested multiple times to find聽their
real win rate. Thanks to all the wonderful
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people who support Trading Rush on Patreon,
you make these videos possible, and I really
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appreciate it. And thanks to everyone for
watching.
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