19 Efficiency Ratio (er)

Also called Kaufman Efficiency Ratio. It is calculated by dividing the net change in price movement over N periods by the sum of the absolute net changes over the same N periods.

If a stock’s trend is at perfect efficiency, it could move up 20 points over 20 days: 20 / 20 x 100 = 100. Or down 20 points in 20 days: -20 / 20 x 100 = -100.

Efficiency Ratio

Figure 8.31: Efficiency Ratio