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Kaufman Efficiency Ratio Bitcoin Analysis & Kaufman Efficiency Ratio Signals

Developed by Perry Kaufman. Described in his book entitled "New Systems & Methods".

The Kaufman Efficiency estimates the ratio of the relative market speed in relation to the volatility. Kaufman efficiency is often used by BTCUSD traders as a filter to help avoid when the btcusd market is "choppy" or flat ranging markets. The indicator also helps to spot and identify smoother Bitcoin market trends. This is an indicator which oscillates between +100 & -100, where zero is the center point. +100 is upward trending market & -100 is downward trending markets.

Kaufman Efficiency Ratio Technical indicator - Kaufman Efficiency Ratio BTCUSD Indicator

Kaufman Efficiency Ratio

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

Bitcoin Analysis and How to Generate Trading Signals

Kaufman is used to generate trade signals as follows:

The smoother the manner in which the btcusd market is trending then the greater the Efficiency Ratio displayed ==22==and illustrated by indicator. Efficiency Ratio values/readings of around zero show a lot of inefficiency or "choppiness" in the btcusd market bitcoin trend movements (ranging markets).

  • If the Efficiency Ratio shows a reading of +100 for bitcoin crypto, then bitcoin is trending upward with perfect efficiency.
  • If the Efficiency Ratio shows a reading of -100 for bitcoin crypto, then that bitcoin price is trending downwards with perfect efficiency.

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

Bullish/Buy Signal

Efficiency Ratio values/readings above +30 indicate a smoother upward trend.

Buy signal gets derived/generated above centerline mark.

Kaufman Efficiency Ratio Technical indicator Buy Bitcoin Signal - Kaufman Efficiency Ratio BTCUSD Indicator

Buy Signal

Bearish/Sell Signal

Efficiency Ratio values/readings below -30 indicate a smoother downwards trend.

Sell Bitcoin Signal is generated below zero center line mark.

Kaufman Efficiency Ratio Technical indicator Sell Bitcoin Signal - Kaufman Efficiency Ratio Crypto Indicator

Sell Signal

However, it's good you experiment with other values to figure out the most appropriate levels for bitcoin being traded and the value that is the best for your bitcoin technique that you're using.

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