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Kaufman Efficiency Ratio Technical indicator

Developed by Perry Kaufman. Described in his book entitled “New Trading Systems and Methods”.

 

The Kaufman Efficiency indicator is a measures the ratio of the relative market speed in relation to the volatility. The Kaufman efficiency is often used by forex traders as a filter to help avoid trading when the market is “choppy” or flat ranging markets. The indicator also helps to identify smoother forex market trends. The Kaufman indicator is an oscillator indicator that oscillates between +100 and -100, where zero is the center point. +100 is upward forex trending market and -100 is downwards forex trending markets.

Kaufman Efficiency Ratio Technical indicator

Kaufman Efficiency Ratio Technical indicator - Forex Trading Indicators

The Efficiency indicator is calculated by dividing the net change in the price movement over an n number of periods by the sum of all the bar-to-bar price changes taken as the absolute values over these same n-periods.

 

 

Technical Analysis of Kaufman Efficiency Ratio Technical indicator

 

The Kaufman is used to generate forex trading signals as follows:

 

The smoother the manner in which the forex market is trending then the greater the Efficiency Ratio shown by the indicator. Efficiency Ratio value readings of around zero indicate a lot of inefficiency or “choppiness” in the market trend movements (ranging forex markets).

 

  • If the Efficiency Ratio indicator shows a reading of +100 for a currency pair, then that forex currency pair is trending upwards with perfect efficiency.
  • If the Efficiency Ratio indicator shows a reading of -100 for a currency pair, then that currency is trending downwards with perfect efficiency.

 

However, it is almost impossible for a market trend to have a perfect efficiency ratio since any retracement movement against the current trend direction during the time period being used to calculate the indicator would decrease the efficiency ratio.

 

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Bullish/Buy Signal

Efficiency Ratio values above +30 indicate a smoother forex uptrend.

Buy signal is generated above centerline mark.

Kaufman Efficiency Ratio Technical indicator Buy Signal

Kaufman Efficiency Technical indicator Buy Signal

 

 

Bearish/Sell Signal

Efficiency Ratio values below -30 indicate a smoother forex downtrend.

Sell Signal is generated below zero centerline mark.

Kaufman Efficiency Ratio Technical indicator Sell Signal

Kaufman Efficiency Technical indicator Sell Signal

 

However, it is good you experiment with other values to determine the most appropriate levels for the currency pair being traded and the value that is the best for your forex trading methodology that you are using.

Market Sentiment 2015:

Quantitative Easing(QE): This is when a Central Bank decides to start printing money to buy Bonds so as to stimulate Economic Growth.

ECB QE: On January 22 2015, ECB - Euro Zone Central Bank announced it was going to start (on March 2015) Quantitative Easing for Euro Zone so as to stimulate growth in the EU, devalue the EURO so that its EU exports become cheaper and also bring inflation up to around 2%.

What it Means: This means the value of the EURO is going to depreciate against all other currencies. (Not at once, but gradually)

How Long will the QE Last: From March 2015 to September 2016 - Traders are already starting to position themselves for this move even before it starts.

Market Outlook: Very Bearish for EURUSD, and EURJPY - Also for GBPUSD, GBPJPY, and AUDUSD (No Need For Technical Analysis - This is Risk Appetite -Risk Averse Speculation).

Do Not Be Left by This Once in a Lifetime Opportunity: Open an account and start selling Euros and position yourself early - ECB has got your back on this one - 1.1 Trillion Euros is What Has Been Set For This QE (€60 billion per month for 19 months). - Others are already profiting - Read the article How to Fast Track Account Opening and Open an account now.

Strategy: Sell the retracements and use 1 Hour and M15 Charts to look for best entry and exit points - Also checkout Money Management Rules.

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