Directional Efficiency Ratio with Adaptive Market-State Levels

Summary

The Efficiency Ratio measures how directly price moved over a period by comparing the net price change with the total absolute movement along the way. Its values range from zero to one: higher readings indicate a more efficient, directional path, while lower readings suggest choppier movement. The document attributes the measure to Perry Kaufman and notes its other name, Fractal Efficiency. It describes the ratio as a possible filter for distinguishing trending from sideways conditions.

This variation adds market direction, which the basic ratio does not indicate, and self-adjusting levels intended to help identify changes in market state. Users can also observe color changes to assess direction and possible trend shifts. The description does not provide the formula for the directional addition or adaptive levels, nor does it state thresholds, settings, examples, or test results. The indicator is presented as a visual assessment aid; the text gives no evidence that its color changes or levels forecast profitable trades.

Key ideas

• The Efficiency Ratio compares net price change with the sum of absolute price movements.
• Higher values indicate a more directional path, while lower values suggest choppier conditions.
• This version adds a directional indication and self-adjusting market-state levels.
• Color changes are presented as a way to assess direction and possible trend shifts.
• The document offers no backtest results or detailed rules for interpreting its signals.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.