The way I have the QT page set up is the ER on the left half with the 1 hour, 30 min, and 15 min taking up the top left half and the 5 min taking up the bottom left half, with the OHLC price bars showing on that 5 min chart.
On the right upper half I have the YM with the 5 min only. Below that I put the QT standard aroon indicator-I think it's a 14 period calculation, I didn't mess with it-for the YM. I traded the YM twice and the ER twice, in effect using the longer ER time frames as a proxy for both, and the YM aroon also as a proxy for both. Not very sophisticated, but about all the crap I can fit on one screen. I just looked for the red line crossing the blue line and the general slopes.
Below is the more detailed article. I hope I'm not breaking any copyright laws by putting it up here. It was part of what was at the link Nocona posted yesterday. With only 2 hours total time devoted to using and/or understanding this I claim almost total ignorance of why it worked today, but it did.
ARS
rading Tip:
Aroon Indicator
by Jay West
Recently a new indicator was added to Ensign Window’s study list. It is called the Aroon indicator. The indicator is supposed to allow you to anticipate changes in price from trending to trading range. At first glace the indictor looks very complicated and seems to make no sense. With a little time, education, and experience I have found it to be most enlightening.
The description of how the indicator works is fascinating stuff. It 'measures the number of periods that have passed since the most recent x-period high and x-period low. Therefore, the Aroon indicator consists of two plots; one measuring the number of periods since the most recent x-period high (Aroon Up) and the other measuring the number of periods since the most recent x-period low (Aroon Down).' Now I am almost sure that most of the people reading this article are just eagerly awaiting a further discussion of how the indicator is plotted in a Stochastic like scale etc, etc, etc. Yeah sure. Just in case you are really interested, a more complete discussion of the indicator can be found on the Internet using a Google search.
We are traders, and as such it is extremely important to know how to use indicators to our advantage. I have never felt the need to be thoroughly educated on how the thing works. Just give it to me and let me play with it long enough and I will either make it work or throw it away because it is impossible to figure out. Right? Ok, I have been playing with the Aroon for a few days and I think I have figured out a way to use it which I will share with you.
As you can see below the Aroon consists of two lines. One red (the Up line), and one blue (the Down line). In the system description there is a discussion about three thresholds. Those being the 70, 50, and 30 thresholds. I have discovered that if I pay attention primarily to the red line’s relationship to these thresholds I can determine what the market is telling me about trend. It also begins to become clear that I can use this indicator to trade. In fact I can almost make a complete system out of the indicator.
Rule #1: If the red up line goes to the top of the range (Window) there is a possibility of an up trend beginning. If the red up line stays generally between the top of the window (100) and the 70 threshold marked by the orange line on the example chart, the up trend is in motion. The closer it remains to the top the stronger the trend.
Rule #2: If the red up line retraces to and breaks through the 50% line (red dashed line) the trend is in serious trouble. If it reaches the bottom of the scale/window, the trend is usually dead and a down trend may be beginning.
Rule #3: If the red and blue lines separate and remain separated the trend is strong and I aggressively add contracts on price pull backs.
So, in summary, what we have is a strong trend if the red line goes to the top and stays there, a failing trend if it pulls back to the 50% threshold and a possible reversal into a down trend if it falls below the 30% threshold. The reverse is true for a down trend. If the red line breaks up through the 50% line the down trend is weakening, etc.
So how do we trade this thing? I have discovered that if I merely watch the relationship between the red and blue lines I can use their crossovers for entry and exit signals. Look at the chart below which I have marked up with arrows for the entries to trades. This is real data for Sep 16th and the trades worked as advertised. The day produced overt 10 points in the AB. You can see that the red line races to the top immediately after the opening, crossing the blue line in the process. That crossing of the blue line is a long entry. Then the red line stays generally above the 70% threshold and the price continues to rise. Note how the red and blue lines are separated through most of the up move. That indicates a strong trend in progress and I would buy more contracts as the price pulls back and hooks.
When the red line breaks the 50% line you can remove at least one contract if you are trading multiple contracts and if you are trading a single contract, go flat with the crossing of the 50% line. In the example chart, you’ll notice that the red line again crosses the blue line on its way to the bottom of the window. You can sell that crossing and go short. As long as the red line stays below the 50% line you can stay in the short trade.
That’s it in a nut shell for the Aroon indicator. I do a couple of other things to help with entries and trade management. Look at the chart below and you can see I have placed the new auto trend lines, recently added to the Ensign program, on the chart example. I think you can see that it is very beneficial to have these on the chart. I trade multiple contracts and I use the Trend lines to 'take one off' when the price closes on the other side of a trend line and I reverse the trade when the Aroon red line crosses the blue line, which when it happens correctly, occurs quickly after the trend line break by the price. Obviously you can reverse the trade if you wish on the trend line break, but I have seen those trend lines do a nasty little adjustment thing on occasion and that’s not fun to get caught in one of those, so I generally wait for the Aroon to confirm the Trend line break and reversal. It is considered aggressive style to reverse the trend line breaks and you may get whipsawed more often doing that than waiting for the Aroon.
I have included some properties windows for the Aroon. The basic settings are shown there. As you can see there is a capability to put an “above and below” setting on the red line thus making it turn green when it is above the blue line and red when below it. That is the second Properties Window shown below. That makes it easier to manage your trade. Simply try to be long when it is green and short when it is red.
There will be times when you should stay out of the market. Those times are when it is chopping. Look for the price bars to go horizontal and the lines to cycle rapidly with the red and blue lines crossing frequently. You must avoid this type market with the Aroon system. The Aroon becomes a virtual whipsaw machine in those circumstances. There are many methods to identify chop. The action of the 'Average Bars' is a good way to spot and avoid chop.
When the market is moving normally this system will catch all the winners and cut losers fairly quickly due to the action of the Aroon and the price action around the trend lines. I use a 0.75 range chart to trade with this indicator. I’m sure other time frames will work with the Aroon but the settings should be tailored to the time frame. Give it a try and see if you like it. A template named the AroonSystem can be downloaded from the Ensign web site.
I hope this clears up some of the confusion that many seem to have concerning this great indicator. Good trading to all.
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