2016issue C0512
Aroon as a time check before a MACD zero-line and moving-average stack
Aroon is a pair of 0-to-100 lines that score how recently a lookback printed a new high or a new low. The archive workflow used an Aroon crossover that moved straight to 100 only as an alert, then waited for a MACD zero-line cross and a move through the moving averages before accepting a trend change.
- Aroon adds a time dimension that MACD does not: it locates new highs and lows inside a user-chosen lookback on a 0-to-100 scale.
- The Aroon event used as an alert or confirmation is a line crossover followed by an immediate move to 100.
- MACD zero-line crossings were used instead of signal-line crossings to reduce the number of trades and remain in a directional move longer.
- An Aroon-up crossover after a month of sideways price was rejected while MACD stayed below zero and price had not cleared the moving averages.
Time on Aroon, momentum on MACD
Aroon is drawn as two lines on a 0-to-100 scale, with 100 marking recent strength in new highs or new lows and 0 marking weakness.
MACD is treated as a price-based momentum measure, while Aroon adds a time dimension by locating new highs and lows inside a user-chosen lookback.
The Aroon event that counts
An Aroon-up reading at 100 is read as a possible shift from a down or sideways bias toward an advance. Aroon-down at 100 with Aroon-up near 0 is read as a possible downside bias.
The Aroon event used as an alert or confirmation of a MACD direction change is a line crossover followed by an immediate move to 100.
A 25-bar Aroon lookback was used because it was judged to align with MACD on the illustrated charts, even though other lookbacks are allowed.
The zero line as the direction filter
In this workflow, MACD is the price-momentum oscillator and its zero line, rather than its signal line, is the primary direction filter.
Focusing on MACD zero-line crossings rather than signal-line crossings was presented as a way to reduce the number of trades and remain in a directional move longer.
The moving average accepts or rejects the alert
A moving average is the smoothed price baseline. A break of that baseline was used with MACD to accept or reject an Aroon alert.
A 55-period exponential moving average, a MACD reading below zero, and a change in bar color were grouped as a late warning stack around a break of that average.
What the illustrated charts required
On illustrated mid-2015 daily charts, some Aroon crossovers printed two to five days before a MACD zero-line cross and a move through the moving averages.
After a month of sideways price, an Aroon-up crossover printed while MACD stayed below zero and price did not clear the moving averages, so the text required price and MACD to show the trend change before an entry.
All readings on this track · 5 readings
- 1995Construct the Aroon indicator as a time-since-extreme oscillator
- 1995Building Aroon and RSI-family oscillators from price and time
- 2016Aroon as a time check before a MACD zero-line and moving-average stack
- 2016MACD as a zero-line state map with average and Aroon filters
- 2016Stacking a MACD zero-line cross with Aroon and moving-average filters