The Efficiency Ratio (ER) was first presented by Perry Kaufman in his 1995 book ‘Smarter Trading‘. It is calculated by dividing the price change over a period by the absolute sum of the price movements that occurred to achieve that change. The resulting ratio ranges between 0 and 1 with higher values representing a more efficient or trending market.
The value of the ER ranges between 0 and 1. It has the value of 1 when prices move in the same direction for the full time over which the indicator is calculated, e.g. n bars period. It has a value of 0 when prices are unchanged over the n periods. When prices move in wide swings within the interval, the sum of the denominator becomes very large compared to the numerator and ER approaches zero.
Some uses for ER:
– A qualifier for a trend following trade; a trend is considered “persistent” only when RE is above a certain value, e.g. 0.3 or 0.4 .
– A filter to screen out choppy stocks/markets, where breakouts are frequently “fakeouts”.
– In an adaptive trading system, helping to determine whether to apply a trend following algorithm or a mean reversion algorithm.
– It is used in the calculation of Kaufman’s Adaptive Moving Average (KAMA).
@clonex – What should I update if I want to add Computed from the dropdown to select high/low/open/close?
Hi I will add this computation in February
Dear Clonex, I was adding this indicator to my SQX. I noticed that the code of the opposite block of the signal is the exact name of it while it shall @OppositeBlock(“KERaboveLevel”) is for KERbelowLevel not as it is shown in the Jav file, Am I right, or is the code in the attached XML is correct?
Sorry i mean the code in java file not XML
Hi this is already the part of StrategyQuantX