Kaufman Efficiency Ratio EA Setup - Setting Up Kaufman Efficiency Ratio Expert Advisor

Kaufman Efficiency Ratio EA Setup - Setting Up Kaufman Efficiency Ratio EA - A trader can come up with an Kaufman Efficiency Ratio EA based on the Kaufman Efficiency Ratio indicator explained below.

Kaufman Efficiency Ratio EA rules can be combined with other Forex trading indicators to come up with other Expert Advisor Forex Robots that trade using rules based on two or more indicators combined to form a trading system.

Kaufman Efficiency Ratio Forex Trading Technical Analysis Signals

Developed by Perry Kaufman. Described in his book entitled "New Systems & Techniques".

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

Kaufman Efficiency Ratio - Forex Kaufman Efficiency Ratio EA Setup

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

Forex Trading Technical Analysis & How to Generate Trading Signals

The Kaufman is used to generate trading signals as follows:

The smoother the manner in which the forex 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 forex markets).

• If the Efficiency Ratio shows a reading of +100 for a currency pair, then that forex currency pair is trending upwards with perfect efficiency.
• If the Efficiency Ratio shows a reading of -100 for a currency pair, then that currency 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 uptrend.

Buy trading signal is generated above center-line mark.

Buy Signal - Forex Kaufman Efficiency Ratio EA Setup

Bearish/Sell Trading Signal

Efficiency Ratio values below -30 indicate a smoother downtrend.

Sell Signal is generated below zero center-line mark.

Sell Signal - Kaufman Efficiency Ratio EA Setup

However, it is good you experiment with other values to determine the most appropriate levels for the currency pair being traded and the value that is the best for your Forex trading methodology that you're using.