Blockchain and Cryptocurrency Advanced - The Aroon Indicator Movement in Range Markets

The Aroon Indicator Movement in Range Markets

On the Aroon indicator, when the market is ranging or in a consolidation market, it means that there is no trend present and that both the buyers and the sellers are at equilibrium. At this point, the market moves up and down but within a resistance level and support level. The Aroon indicator is a great indicator that can be used to identify a ranging market. When using the Aroon indicator to identify a ranging market, attention has to be paid to the Aroon up and Aroon down lines. When the Aroon up and the Aroon down lines are parallel to each other or moving lower and closer to each other, then it is an indication that there is no trend present and that the market is most likely ranging or consolidating. This shows that there were no new highs or new lows within the selected period.

Does Aroon Indicator give False and Late signals? and The Combination of another indicator with the Aroon indicator to filter late and false signals.

Yes, the Aroon indicator isn’t perfect and is also liable to give false or late signals. Even though the Aroon indicator is a very powerful and effective technical indicator, it is still not 100% perfect just like every other technical indicators. There are always false signals that might be present that is why it is important to always confirm signals by making use of a combination of multiple indicators. From the BNB price chart, we can see that after the golden cross was formed on the 20 and 50 EMA, the price remained above the EMA lines which is a strong indication that the price is still in an uptrend, however, the Aroon indicator was signaling that the trend is slowing down with the Aroon down moving above the Aroon up line. This is a false signal because the trend is still strong and went on to create new highs.

Using the Aroon Indicator with the EMA

Even though the Aroon indicator is known to provide accurate and good buy and sell signals, it is always a good idea to combine it with other tools and indicators for signal confirmation, as this will help filter out false or late signals before making any trading decision. The moving average indicator is a great tool that not only indicates trend in the market but also great for buy and sell signals. For this, I will be making use of the 20 EMA and 50 EMA to confirm the signals of the Aroon indicator.

_{BNB/USDT Chart}

From the BNB/USDT chart, we can see that the Aroon up line crossed above the Aroon down line. This crossover is a good buy signal for a potential uptrend. The EMA confirmed this signal as the 20 EMA line crossed above the 50 EMA line. The Aroon up value moved towards the upper limit and the Aroon down value moved towards the lower limit. Both the Aroon up and Aroon down are far apart from each other which indicated a strong bullish trend. The strength of the bullish trend was also confirmed as the price remained above the EMA lines.

From the BNB/USDT chart, we can see that the Aroon down line crossed above the Aroon up line. This crossover is a good sell signal for a potential downtrend. The EMA confirmed this signal as the 20 EMA line crossed below the 50 EMA line. The Aroon down value moved towards the upper limit and the Aroon up value moved towards the lower limit. Both the Aroon down and Aroon up are far apart from each other which indicated a strong bearish trend. The strength of the bearish trend was also confirmed as the price remained below the EMA lines.