Trend Efficiency Filtering with EMA Direction and ATR Exits

Summary

This framework combines a moving average direction filter with an efficiency score to select more direct price moves. The score divides the absolute net change over a lookback period by the sum of absolute bar to bar changes. Values nearer one indicate that price covered more distance in one direction; lower values reflect a less direct path.

Long entries require the fast EMA to be above the slow EMA, while short entries require it to be below. Both also require efficiency to exceed a configurable threshold. Exits use ATR based stop and target levels, with the target distance set as a multiple of the stop distance. The document gives the rules and example defaults, but provides no backtest results or market specific evidence. Performance, sensitivity to parameter choices, and behavior across market conditions therefore remain unestablished.

Key ideas

• The efficiency score compares net price change with total absolute movement over a lookback window.
• Higher efficiency indicates a more direct price path, while lower efficiency reflects more reversals along the way.
• EMA ordering sets trade direction, and an efficiency threshold filters entries.
• ATR scales stop distance to recent volatility, while a risk reward setting determines target distance.
• The document describes a strategy design but does not report performance tests.

Tags

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