Kaufman Efficiency Ratio

What is the Kaufman Efficiency Ratio?

The Kaufman Efficiency Ratio measures how directly price traveled over a lookback window. Take the absolute net change (the close now versus the close N bars ago) and divide it by the sum of the absolute bar-to-bar changes across the same window. The result lies between 0 and 1: a value of 1 means every bar moved in the same direction, a perfectly straight path, while values near 0 mean price churned back and forth and finished close to where it started. Perry Kaufman introduced the ratio (he also called it fractal efficiency) in the mid-1990s as the signal-to-noise engine of his adaptive moving average.

Because it compares displacement to distance traveled, the ratio gauges trendiness, not direction: a clean downtrend scores as high as a clean uptrend. Its best-known role is inside KAMA, where it maps to a smoothing constant so the average accelerates in efficient moves and flattens in noise, but it also stands on its own as a regime filter.

How traders use it

• As a regime filter: trend systems trade only while the ratio holds above a chosen threshold and stand aside, or hand off to mean-reversion logic, when it decays toward zero.
• As the adaptive engine inside KAMA and related averages, scaling the smoothing constant between fast and slow limits so one tool behaves differently in trend and chop.
• As a ranking metric across symbols or timeframes, sorting for markets currently trending efficiently enough to justify breakout or pullback playbooks.