Trends/Trend strength and direction

Efficiency ratio

Net price change divided by the total path travelled, from 0 to 1.

Trend strength and directionBest on 3M, 6MAlso called Kaufman ER

Illustration of the efficiency ratio shape. It is a sketch, not real price data.

What it shows

Perry Kaufman's efficiency ratio is the absolute change in price over N bars divided by the sum of the absolute bar-to-bar changes. If price moved in a straight line, the ratio is 1. If it zigzagged and came back to where it started, it is near 0.

It is the building block of Kaufman's adaptive moving average.

How we find it

The same code that draws it on your chart follows these steps, with the same result every time.

Change = |close − close N bars ago|.
Path = sum of |close − previous close| over N bars.
ER = change ÷ path.
Plot with N = 10.

Starting values: N 10. These are proposed and will be tuned on real price data before launch.

How to read it

The panel shows ER from 0 to 1.
Near 1: smooth, directional.
Near 0: choppy.

Status labels you may see

Label	What it means
Efficient	ER above 0.6.
Middle	ER between 0.3 and 0.6.
Noisy	ER below 0.3.

What cancels it

Nothing cancels it.

What traders check next

Trend direction.
KAMA slope.
Volatility.

Limits

Shows efficiency but not direction.
Window is a choice.
Rises just after a gap.

Try it in forecastviz

Open any ticker and choose Trend strength and direction → Efficiency ratio in the left menu.
Switch between 3M, 6M to see how the picture changes.
Compare with Kaufman adaptive moving average and Average directional index on the same chart.

Open on a ticker

Questions

What does 1 mean?

Every bar moved the same way.

Where is it used?

In KAMA and other adaptive averages.