KAUFMAN EFFICIENCY INDEX Trading Guide

The Kaufman Efficiency Ratio (ER) Index is a pure mathematical oscillator designed to mathematically separate a trending market from pure "noise". It calculates the net directional change of price over a specific window and divides it by the absolute sum of every single tick movement inside that window. Results near 100 represent an efficient, straight line. Results near 0 represent chaotic chop.

What does the indicator show?

• Efficiency Ratio (ER) Line: A plotted oscillator swinging strictly between 0 and 100.
• High Efficiency Zone: A shaded upper zone (default > 70). When the ER is inside this zone, the market is moving smoothly in one direction with very little pullback interference.
• Low Efficiency Zone: A shaded lower zone (default < 30). When the ER is stuck here, the market is stuck in a choppy, unpredictable trading range.

Key Settings

• Lookback Window: The amount of historical bars used to analyze the total distance traveled versus the net displacement.

How to use Strategy Parameters (Condition Source)

Using the Kaufman ER inside the Strategy Tester is one of the most effective ways to pause your trading bots during bad market conditions.

1. Oscillator Outputs

• er — The raw non-directional index value between 0 and 100.
• directionalER — The ER mathematically multiplied by the trend direction (yielding -100 to +100) so you know if the efficiency is bullish or bearish.

Strategy Example: If you are running a trend-following system, add a mandatory condition that er > 50. This guarantees your bot will stop taking entries during sideways chop.

2. Boolean Filters

• isEfficient — Triggers true (1) if the ER is currently registering high efficiency and low noise.
• isChoppy — Triggers true (1) if the ER is registering extreme noise.

Strategy Example: Tell your bot to aggressively take profit or close positions early whenever isChoppy is true, ensuring you exit before the market consolidates and burns your floating PnL.