The Aroon Indicator strategy is a forex trading strategy that is built on the core of isolating consolidations, identify developing trends, define correction periods and anticipate reversals.
This is achieved with the help of the Aroon custom indicator and the Alligator MT4 indicator.
Chart Setup
MetaTrader4 Indicators: Aroon_Up_Down.ex4 (default setting), Alligator.ex4 (default setting)
Preferred Time Frame(s): 5-Minutes, 15-Minutes, 30-Minutes, 1-Hour, 4-Hours, Daily
Recommended Trading Sessions: Any
Currency Pairs: Any pair
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Buy Trade Example
Fig. 1.0
Strategy
Long Entry Rules
Enter a buy position if the following chart or indicator pattern are in display:
- If the Aroon_Up_Down.ex4 lines crosses (with the Aroon-Up pointing upwards), it shows signs of an emerging signal (the cross was above the 50 mark, which obviously favors a bullish trend). Further down the line, if the Aroon-up (DodgerBlue line) is above the 50 level and nears the 100 level, it is a trigger to buy.
- If the Alligator’s 5SMA (green) line crosses on the 8SMA (red) line and the 13SMA (blue) line upwards as shown on Fig. 1.0, it is a signal to enter a buy.
Stop Loss for Buy Entry: Place stop loss below support.
Exit Strategy/Take Profit for Buy Entry
Exit or take profit on position(s) if the following conditions or rules hold sway:
- If the Aroon_Up_Down.ex4 custom indicator lines crosses as shown on Fig. 1.0 (with the Aroon-Up pointing downwards), it is a trigger to exit or take profit accordingly. If they line crosses below the 50.0 mark, it adds more weight on our exit or take profit trigger.
- If price closes below the green 5SMA line of the Alligator, it is a signal to exit or take profit on position(s).
Sell Entry Rules
Initiate sell order(s) if the following price/indicator pattern is on display:
- If the Aroon_Up_Down.ex4 lines crosses (where the Aroon-Down points upward), it shows signs of an emerging signal (with cross above the 50 mark, it favors a bearish signal). The Aroon-Down line test the 100 level and further adds weight to the bearish signal as seen on Fig. 1.1. The Aroon-Down is depicted as a red line.
- If the Alligator’s 5SMA (green) line crosses on the 8SMA (red) line and the 13SMA (blue) line downwards as shown on Fig. 1.0, it is a signal to go sell.
Stop Loss for Sell Entry: Place stop loss above resistance.
Exit Strategy/Take Profit for Sell Entry:
Exit or take profit on position(s) if the following is observed:
- If the Aroon_Up_Down.ex4 custom indicator lines crosses (with the Aroon-Down pointing downward) as shown on Fig. 1.1, it is a trigger to exit or take profit accordingly. More weight is added to our exit trigger when the red Aroon-Down line moves below the 50 mark.
- If price closes above the green 5SMA line of the Alligator, it is a signal to exit or take profit on position(s).
Fig. 1.1
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About The Trading Indicators
Created by Bill Williams, the Alligator MT4 Indicator is a trend indicator, as such it is termed a Bill Williams indicator within the MT4 indicator entries.
The indicator deploys three components i.e. 5SMA (green), 8SMA (red) and 13SMA (blue) line in identifying trend changes.
The Aroon indicator on the other hand was introduced by Tushar Chande in 1995, the indicator determines if an asset will trend or not, and also how strong the trend is.
The indicator can be used in determining emerging trends, pinpointing consolidations and also in spotting correction periods.