Kaufman Efficiency Ratio Stocks Technical Analysis and Kaufman Efficiency Ratio Stocks Signals

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

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

Kaufman Efficiency Ratio

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

Stock Technical Analysis and Generating Stocks Signals

The Kaufman is used to generate stocks signals as follows:

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

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

However, it is almost impossible for a market stocks 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 Stocks Signal

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

Buy signal is generated above center-line mark.

Buy Stock Signal

Bearish/Sell Stocks Signal

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

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

Sell Stocks Signal

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