Kaufman Efficiency Ratio CFD Analysis and Kaufman Efficiency Ratio Signals

Developed by Perry Kaufman. Described in his book entitled "New Systems and Methods".

The Kaufman Efficiency measures the ratio of the relative market speed in relation to the volatility. Kaufman efficiency is often used by traders as a filter to help avoid trading when the market is "choppy" or flat ranging markets. The indicator also helps to identify smoother CFD Trading market trends. This is an oscillator that oscillates between +100 & -100, where zero is the center point. +100 is upward trending market & -100 is downward trending markets.

Kaufman Efficiency Ratio

Efficiency indicator is calculated by dividing net change in the price movement over an n number of periods by sum of all the bar-to-bar cfds price changes taken as a absolute values over these same n-periods.

Technical Analysis and Generating CFDs Signals

The Kaufman is used to generate signals as follows:

The smoother the manner in which the market is trending then the greater the Efficiency Ratio shown by the indicator. Efficiency Ratio value readings of around zero indicate a lot of inefficiency or "choppiness" in the market trend movements (ranging markets).

• If the Efficiency Ratio shows a reading of +100 for a cfd instrument, then that cfd is trending upwards with perfect efficiency.
• If the Efficiency Ratio shows a reading of -100 for a cfd instrument, then that cfds price is trending downwards with perfect efficiency.

However, it is almost impossible for a market trend to have a perfect efficiency ratio since any retracement movement against the current trend direction during the time period being used to calculate the indicator would decrease the efficiency ratio.

Bullish/Buy Signal

Efficiency Ratio values above +30 indicate a smoother upward cfds trend.

Buy trading signal is generated above center-line mark.

Buy CFDs Signal

Bearish/Sell Signal

Efficiency Ratio values below -30 indicate a smoother downward cfds trend.

Sell Signal is generated below zero center-line mark.

Sell CFDs Signal

However, it is good you experiment with other values to determine the most appropriate levels for the cfd instrument being traded and the value that is the best for your cfd trading technique that you are using.