Kaufman Efficiency Ratio XAUUSD Technical Analysis & Kaufman Efficiency Ratio XAUUSD Signals

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

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

Kaufman Efficiency Ratio

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

XAUUSD Technical Analysis and How to Generate Trading Signals

The Kaufman is used to generate xauusd signals as follows:

The smoother the manner in which the xauusd 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 xauusd market xauusd trend movements (ranging xauusd markets).

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

However, it is almost impossible for a market xauusd 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.

Bullish/Buy XAUUSD Signal

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

Buy signal is generated above center-line mark.

Buy XAUUSD Signal

Bearish/Sell XAUUSD Signal

Efficiency Ratio values below -30 indicate a smoother downward gold trend.

Sell XAUUSD Signal is generated below zero center-line mark.

Sell Gold Signal

However, it is good you experiment with other values to determine the most appropriate levels for the xauusd instrument being traded and the value that is the best for your xauusd methodology that you're using.