Humanity has become overly reliant on technology. If today's generation tries to live the life that our forefathers once lived, trade like the time of Harshad Mehta, it won’t just be possible. Going back in time will be neither conceivable nor simple since today's masses have gotten accustomed to advancement. Similarly, the trading and brokerage industry has not been unscathed. Trading using Algo platforms is gaining popularity among traders and investors since it includes less manual execution and more technology. Algorithmic trading, also known as Algo-trading, executes trades when pre-programmed specified instructions are satisfied, generating profits at a pace and frequency that a human trader cannot match.
In the early days of Algorithmic trading, strategies for executing trade orders were programmed in a computer language. However, as we all know, supply caters to demand. Today, there are platforms such as AlgoBulls and Tradetron where market players who want to trade their strategy using Algo may do so with no knowledge of coding. All algorithmic trading techniques in use today may be broadly categorised into the following categories:
There are several Algo based Trading Strategies available to traders and investors, and the ideal approach for a certain trader will depend on their trading goals and risk tolerance.
- Trend Identification or Momentum-based strategies.
- Delta Neutral Strategies/ Arbitrage algorithmic trading strategies
- Position Sizing/ Market making algorithmic trading strategies.
- Options trading and options trading strategies
So what is Momentum Trading?
Momentum trading strategies look for opportunities in short-term asset price movement and try to profit from market volatility. The primary idea is that if an underlying price is rising, it will continue to rise, and vice versa. Momentum trading is a strategy in which investors/traders buy securities at higher price and sell those securities even higher. This strategy is opposite to value investing.
Intraday strategy which uses Aroon indicator
There are many best Intraday Algo strategies on AlgoBulls which uses Aroon indicator with various risk appetite, capital requirement, duration and profit profile. One of the Algo strategy has been mentioned below.
Algo bulls strategy- STAB671
This is an intraday Aroon Indicator Trading Strategies that is employed on the Bank Nifty. According to the description, the strategy works with Aroon Up and Aroon Down crossovers. When the Aroon Up indicator crosses over the Aroon Down indicator, a buy signal is triggered. Sell signals are triggered when the Aroon Up crosses below the Aroon Down.
The strategy has desired profit of Rs 8000 /- day and risk appetite of Rs 3000 /- day. The strategy entails 4.98% of all time risk.
What is the Aroon Indicator?
Aroon Indicator is a technical indicator used in securities trading in the financial market that was developed by an Indian-American author, businessman, and economist, Tushar Chande in 1995. He introduced this indicator in the book "The New Technical Trader". The phrase Aroon was derived from the Sanskrit word which means “dawn’s early light. The Aroon Indicator is a trend-following indicator that was designed to gauge the strength and direction of a trend and to signal the beginning of a new trend.
The Aroon indicator consists of two components: Aroon up and Aroon down, sometime known as the bullish Aroon and bearish Aroon. The Aroon-Up indicator shows how many days have passed since the most recent 25-day high. A high Aroon up or down line value suggests a significant trend in that direction, whereas a low value indicates a weak or no trend. To validate or contradict trade indications, the Aroon Indicator is frequently employed in combination with other technical indicators.
While the Aroon indicators may be used with any time frame and are used to gauge how long it has been since price posted a new high or low, it is most often computed using 25-periods.
How to use Aroon Indicator
It’s easier to use Aroon Indicator, when the two lines Aroon indicator run parallel to each other - or in the case of single line indicator, when values stood near or at zero - they are used to predict ranging or consolidating markets. Signals from the Aroon indicator can be used to provide trading signals, if the bullish Aroon line crosses the bearish Aroon line or vis-a-vis, it is often viewed as the start of a change of trend.
The Aroon, like most momentum oscillator indicators, is prone to producing misleading indications during a volatile market. Traders should not trade exclusively on the basis of the Aroon indicator, but rather on the basis of a mix of other technical analysis tools, price and volume action, and fundamental analysis.
Extremely high Aroon readings, assuming they are at or near 100, are commonly considered early warning signs of an impending trend shift or the formation of a bubble at a certain time period. Some market experts see this as suggesting overbought circumstances in a market, implying a sell-off is imminent. Vis-à-vis for Aroon-Down indicator.
Extreme Aroon levels over a time frame may signal overheated or distressed market situations. "Markets can stay irrational longer than you can stay solvent," experienced traders accept that a market/underlying can remain technically overbought or oversold for some time. The price of the underlying can keep the momentum to moving in the direction of the current trend before any corrective retracement in the opposite direction begins.
Aroon Indicator: Formula, Calculations
Number of formulas and technical it looks, yet, it is not as difficult as rocket science. It needs that the high and low prices of an asset to be tracked during the number of periods utilised in the calculation.
- Keep track of the asset's price highs and lows over the past 25 periods.
- Take note of how long it has been since the last high and low.
The Aroon oscillator is plotted in a separate window that shows price action. The indicator value oscillates between 0 to 100.
Formula for Aroon up and Aroon Down
Aroon-Up = ((25 – Days Since 25-day High)/25) x 100
Aroon-Down = ((25 – Days Since 25-day Low)/25) x 100
If the Aroon Up line is higher than the Aroon Down line, the trend is that of an uptrend; if the Aroon Down line is higher than the Aroon Up line, it is a downtrend. A number more than 70 on the Aroon Up line suggests a strong upward trend, while a value less than 30 indicates a weak trend or no upward trend at all. When the Aroon Up and Aroon Down are both greater than 50, it suggests a strong trend, however, when both are less than 50, it shows a weak trend. Overall, greater Aroon values suggest a stronger trend, whereas lower values imply a weaker trend or no trend.
The Single Line Aroon Indicator
The Aroon indicator is available in a Single-Line Aroon Oscillator form. It has a scale of -100 to +100. If the Aroon oscillator is around the middle Zero-Line. Values around the middle zero line in the single indicator suggest the absence of a trend, a market that is ranging, or in a consolidation phase. Values more than +50 suggest a bullish trend, while values less than -50 indicate a bearish trend.
The market is consolidating and drifting sideways. When they are above +50 or below -50, it indicates a bullish or bearish trend. Also, note the additional confirmation of a trend change that comes from the extremely high volume levels that occur at the peak of the uptrend and the beginning of the sell-off.
Difference between the Aroon Indicator and the Directional Movement Index (DMI)
The Aroon indicator is comparable to Welles Wilder's Directional Movement Index (DMI). Both indicators employ lines to indicate trend direction. The time elapsed between price highs and lows is the major distinguishing feature that the Aroon Indicator measures. The Directional Movement Index (DMI) indicator calculates the price difference between the current and historical highs and lows. The Aroon Indicator approach tracks time, whereas the Directional Movement Index (DMI) indicator tracks price.
Basically, it’s a buy-side strategy that looks for stocks that have already demonstrated positive momentum or a positive breakout. https://www.moneysukh.com/ is currently associated with some leading fully automated trading platforms that support a wide variety of trading techniques, including intraday trend finder strategies for cash segments.
This tactic is based only on common sense and reason and is very basic in nature. It disregards commonly used characteristics like gaps and opening range as the first basic rule. Instead, it waits until 11:15 a.m., roughly two hours after the market opens (the market opens at 9.14 a.m.), when the trading volume is in the declining phase. By the time our algorithm begins scanning the stocks, the overnight news has been reflected in the price of all stocks, and price fluctuations have stabilized. Therefore, any adverse or counter fluctuations don’t hamper the stop loss frequently.
By 11:15 a.m., the computer had scanned all 150+ stocks to determine which were trending upward or having a positive breakout. While there may be a number of equities that exhibit a higher top higher bottom formation, our algorithm only goes long on the top ten scrips that have gained more than two and a half percent with good volumes between market open and 11:15 a.m. After the trade is entered, the position is closed at 3:20 p.m., irrespective of the outcome. Of course, we have some predetermined stop loss in case of a backfire.
Criteria and rules for stock selection
- First, try to find equities that have gained more than 2.5% since the market opened with relatively higher volume.
- At 11:15 a.m., we will take the time interval of 15 minutes candle. If the last candle breaks the high of the previous candle, we will go long.
- Stop loss: if the stock price drops below the day's open price, we will surely close the long position.
- The position is closed at 3.20 p.m. on the day if the stop loss is not hit.
- Only long positions are allowed in this strategy; there will be no shorts in the case of vice versa.
Those interested in trading this method can do so with our associated fully automated platform, which can be accessed at https://www.moneysukh.com/AlgoTrading. Please note that we do not offer or provide any guarantee of returns or any kind of past performance in our strategies.
The Aroon indicator is a powerful technical analysis tool that may be used in conjunction with other technical indicators to indicate a bullish or bearish trend or an impending market reversal. It may also be used as a trading filter to prevent traders from entering volatile or range markets. Traders may identify the strength of an upward or downward trend and make informed trading decisions by evaluating the Aroon Up and Aroon Down lines. It's also worth noting that the Aroon Oscillator is a lagging indicator that should be utilised in tandem with other leading indicators while keeping fundamentals linked with the underlying in mind for optimal timing of entry and exits. Drawback with this strategy is, there are no exit indications other than line crossover. There are many best intraday Algo Trading strategy employed on Aroon indicator and made for investors, suitable on basis of various investment parameters.