The Aroon-Up continuous reading close to the 100 level is an indication of a very strong trend. However, at some point in time one or two trade scenarios can happen:
To expect a trend reversal
Or, to expect a pullback
The interpretation of this type of reading suggests that we’ve been forming these higher highs for a very long period of time. For Aroon-Down we would be forming lower lows.
Often times these excessive readings on the oscillator signals the presence of a strong trend. However, if you’re looking to just scalp the market, you can exit your trade as soon as the Aroon-Up crosses below the centerline.
But, we’re looking to trade with the trend.
And, we have developed a proven way to differentiate between a pullback and a full reversal.
We call it the law of effort vs. result.
The effort is the activity measured by the lines (in our case Aroon-Up). And, the result is the activity measured by the price action. The theory is that if the Aroon-UP resets itself by moving away from the 100 readings and going to 0 readings, the price should follow the lead of the Aroon-Up reading.
We would expect the effort put to translate into lower prices. If it does not, and we see only a slight change in the price, we know the uptrend is very strong.
This is how you can catch pullbacks with and trend trading.
We combined the trend strength strategy and pullback trading strategy into one big market edge.