Customer Support : 020-61923200, [email protected] | Call and Trade : 020-61923220
Creator: Perry J. Kaufman
Period: 10
Average period: 10
The Efficiency Ratio Indicator shows two lines below the chart.
1 – Green line represents Efficiency Ratio
2 – Red line represents the Average of efficiency ratio indicator
A confirmation indicator developed by Perry J. Kaufman, the Efficiency Ratio can be used to determine the strength of a trend.
The efficiency ratio is calculated by dividing the net change in price movement (rate of change) over the specified period by the sum of the absolute net changes (rate of change) over the same period.
A large swing in prices within the interval would result in a very large sum in the denominator compared to the numerator. As a result, the efficiency ratio will approach zero.
The efficiency indicator at 1 displays the same trend and volatility. An efficiency ratio greater than 0.30 indicates an upward trend, while an efficiency ratio less than 0.20 indicates a downward trend.
A good confirmation indicator for your trading system is the efficiency ratio indicator.
The indicator table value in TradePoint & RZone also provides you with a list of all values of this indicator for any group of stocks. This will allow you to compare the readings of this indicator across different stocks.
This indicator is also available in the System Builder of RZone & TradePoint for all charting methods. Using the system builder, you can develop various strategies based on the different conditions already present in this indicator. Additionally, it can be used with other indicators or price patterns to develop effective trading strategies. For any group of stocks and market segments, you can scan and backtest stocks based on those strategies.
The indicator is applicable to all types of charting. Calculated based on the number of columns on P&F charts, bricks on Renko charts, lines on Line-break charts, candles on Heikin ashi charts, and lines on Kagi charts. While the formula and reading of the indicators remain the same, they become more dynamic on these charts.