Guide · Trend following
Does Aroon work?
Across 375 stocks, Aroon cut the worst fall on 83%, beat buying and holding on risk-adjusted return on 25% and on raw return on 22%. Mainly a seatbelt: it softened the big falls on most stocks, but usually gave up return to do it.
What it predicts
Measures how recently price made its 25-day high versus its 25-day low. Fresh highs mean an uptrend.
- In when Aroon Up is above Aroon Down.
- Out when Aroon Down is above Aroon Up.
Trend following plays bet that prices that have been rising tend to keep rising for a while, and falls tend to keep falling. The family guide
How to use it
- It trades often (about 10 switches a year per stock), so costs, spreads and taxes eat into it more than the backtest's 0.05% per switch suggests.
- Expect to be wrong more often than right: only 37% of its calls worked. Its results come from the size of the winners, so following it means sitting through strings of small losses.
- It worked best on Industrials & rentals (67% beat holding on risk-adjusted return) and worst on Sectors (0%).
- Use it as one input. Your signal combines the plays you count with the other factors you weight into one call.
When it worked
Aroon did best against holding in the 2008 crash (+21% median gap) and worst in the 2020–21 rally (−29%). Median gap in return against holding the same stock (per year over stretches longer than 18 months; crypto excluded).
| 2008 crash | Recovery 2009–19 | COVID drop | 2020–21 rally | 2022 bear | Since Oct 2022 | |
|---|---|---|---|---|---|---|
| Aroon | +21% | −9% | +21% | −29% | +8% | −10% |
Where it worked
By kind of stock: how often it beat holding on risk-adjusted return, and the median Sharpe ratio gap.
| Group | Beat holding, risk-adjusted | Sharpe gap |
|---|---|---|
| Industrials & rentals | 67% | +0.01 |
| Micro caps | 33% | -0.09 |
| Software & devices | 32% | -0.20 |
| Real estate | 32% | -0.07 |
| Semiconductors | 30% | -0.15 |
| Industrials & materials | 29% | -0.19 |
| Financials | 27% | -0.12 |
| Energy & power | 25% | -0.11 |
| Consumer & retail | 21% | -0.23 |
| Big tech | 17% | -0.11 |
| Indexes & ETFs | 14% | -0.07 |
| Metals & mining | 14% | -0.18 |
| Healthcare | 11% | -0.16 |
| Media & telecom | 10% | -0.13 |
| Sectors | 0% | -0.25 |
Where it helped most
Sharpe ratio gap against holding, stocks with 3+ years of history
Right now
Aroon holds 149 of 377 names as of the Oct 13, 2026 close.
Changed its call in the last two weeks:
Backtest results since 2005 (or as long as each stock has traded), against holding the same stock over the same dates, after 0.05% per switch. Past results don't promise future ones. This analysis does not constitute trading advice. Please meet with an advisor or independently review sources before making any decision.