Kaufman Efficiency Ratio, ADX Strategy

Explore a simple algorithmic trading strategy for Gold and other instruments, using the Kaufman Efficiency Ratio and ADX indicator as filters for market entry a

Published · Updated · Methodology: Technical Indicators

Part of: ADX / Trend Strength

  • Methodology: Technical Indicators
  • Content type: strategy
  • Markets: Gold, Futures, Many other instruments

Indicators used

  • Kaufman Efficiency Ratio
  • ADX

Source video

Decoded from: Very simple Gold strategy that can be applied to many other instruments. by Ali Casey | StatOasis — watch the original

Key timestamps:

  • 0:00 - Introduction
  • 1:50 - Building a simple strategy
  • 5:05 - Reversing the strategy
  • 6:20 - Building long and short sides
  • 7:25 - Adding Kauffman Efficiency Ratio filter
  • 10:15 - Adding ADX filter
  • 12:45 - Epilogue

Strategy overview

ADX measures how strongly a market is trending without saying which direction it favours — and this entry pairs it with a second trend-quality measure built on entirely different arithmetic. The Kaufman Efficiency Ratio compares the net distance price has covered against the total distance it actually travelled to get there: a straight, purposeful move scores near one, while a jagged path that ends roughly where it started scores near zero. ADX reaches a related judgement by smoothing directional movement over time. Two different instruments, one shared question — is this market moving with intent, or just moving?

The source video's structure is as informative as the indicators themselves. Its chapter list shows a plain strategy built first, then deliberately reversed, then extended to cover both long and short sides, and only after all of that does the Kaufman Efficiency Ratio filter appear, with ADX added last. That ordering makes the roles explicit: the filters are not the strategy, they are conditions layered onto an entry that already exists. Reversing a rule set mid-build is a habit from statistical testing rather than from chart-reading — it asks whether an edge has a sign at all, or whether both directions are equally unremarkable.

Ali Casey's StatOasis channel presents the work on Gold, under a title claiming it "can be applied to many other instruments" — a portability claim that is a hypothesis to test, not a result. The open question whenever two trend-strength filters are stacked is whether they are genuinely separate conditions or two views of the same thing, which only becomes visible when each layer is evaluated on its own. No rule set was extracted for this entry, so this page covers the concept and the context of the source rather than the specifics of the build.

Topics

kaufman efficiency ratio strategy · adx strategy · technical indicators · gold trading strategy · futures trading strategy · algorithmic trading strategy · trading strategy · tradingview strategy · pine script

Frequently asked questions

What is the Kaufman Efficiency Ratio?

It compares the net price movement over a lookback period with the total path travelled to produce it. Readings near 1 indicate a direct, efficient move in one direction; readings near 0 indicate choppy back-and-forth that ends close to where it began.

Why would a strategy use both the Kaufman Efficiency Ratio and ADX?

Both assess trend quality, but from different calculations — ADX smooths directional movement, while the Efficiency Ratio measures how much of the travelled path became net progress. Stacking them means an entry must satisfy two conditions that look independent, though whether they actually disagree often enough to add value is something to test one layer at a time.

Does a Gold strategy transfer to other instruments?

The source video presents it as applicable beyond Gold, but portability is a claim to verify per instrument rather than assume. Volatility, session behaviour and typical trend persistence differ across markets, so a trend filter calibrated on one can behave quite differently on another.

Why do traders test the reverse of a strategy?

Reversing the entries checks whether results come from a genuine directional edge or from incidental drift in the data. Strategy Decoder catalogues strategies like this one from video sources so you can rebuild and evaluate them — including in reverse — on TradingView.

About this strategy page

This trading strategy was decoded by Strategy Decoder's AI from a public YouTube trading video and turned into a structured, reviewable specification. In the interactive app this page shows the full entry and exit logic, risk management settings, the indicators involved with their parameters, AlgoWizard-compatible logic and a Pine Script export ready for TradingView backtesting — plus an automated backtest verdict when one has been computed for this strategy.

Strategy Decoder catalogs 2,229 decoded strategies. Each one is extracted with confidence scoring, cross-linked to the indicators it uses, and kept up to date as new videos are processed daily. Load this page with JavaScript enabled to use the interactive tools, or start from the strategy explorer to filter by methodology, market and timeframe.

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