Kaufman Efficiency Ratio Analysis Signals
Created by Perry Kaufman. Described in his book entitled "New Trading Systems & Techniques".
The Kaufman Efficiency measures the ratio of the relative market speed in relation to volatility. Kaufman efficiency is often used by traders as a filter to help avoid trading when the market is "choppy" or flat ranging markets. The trading indicator also helps to identify smoother price trends. This is an oscillator that oscillates between +100 and -100, where zero is the center point. +100 is upward trending market and -100 is downward trending markets.
Kaufman Efficiency Ratio
The Efficiency indicator is calculated by dividing the overall net change of the price movement over an n-number of periods by the sum of all the bar to bar trading price changes taken as absolute values over these same n-periods.
Technical Analysis and How to Generate Signals
Kaufman is used to generate trade signals as follows:
The smoother the manner in which the market is trending then the greater the Efficiency Ratio shown by trading indicator. Efficiency Ratio value readings of around zero indicate a lot of inefficiency or "choppiness" in the market trend movements (range markets).
- If the Efficiency Ratio shows a reading of +100 for a currency pair, then that forex pair is trending upwards with perfect efficiency.
- If the Efficiency Ratio 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 trend move to attain a perfect efficiency ratio since any retracementpull-back move against current market trend direction during the trading time period being used to calculate the trading indicator would decrease this efficiency ratio.
Bullish/Buy Trade Signal
Efficiency Ratio values above +30 indicate a smoother up-trend.
Buy trade signal is generated above center-line mark.
Buy Trade Signal
Bearish/Sell Trade Signal
Efficiency Ratio values below -30 indicate a smoother down-trend.
Sell Trade Signal is generated below zero centerline mark.
Sell Signal
However, it's 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 trading technique that you are using.
Study More Lessons & Topics:
- How to Add MT4 Hull Moving Average Indicator
- Learn Charts Analysis Tutorial Course Course Tutorial
- FX Trading Momentum Indicator Expert Advisor Setup
- AUDCHF Opening Time and AUDCHF Closing Time
- How to Use MetaTrader 4 Linear Regression Indicator
- GDAXI 30 Trading Strategy Courses
- Awesome Oscillator MT5 Trading Analysis
- Setting Up RSI Indicator Based Automated Expert Advisor
- Trend Reversal Technical Indicator for Intraday Trendline Break Reversal Strategy
