Kaufman Efficiency Ratio Trading Strategy

Discover a daily S&P 500 trading strategy using the Kaufman Efficiency Ratio and a moving average. Learn entry logic for trend strength and direction.

Published · Updated · Methodology: Technical Indicators

Part of: Moving Average Strategies

  • Methodology: Technical Indicators
  • Content type: strategy
  • Timeframes: Daily
  • Markets: S&P 500 Index (SPY)

Indicators used

  • Efficiency Ratio (ER)
  • Moving Average

Source video

Decoded from: Kaufman Efficiency Ratio Trading Strategy (Backtest) by Quantified Strategies — watch the original

Key timestamps:

  • 0:08 - Introduction to Efficiency Ratio strategy
  • 0:30 - What is the Efficiency Ratio (ER)?
  • 1:10 - How Efficiency Ratio is calculated
  • 1:35 - Strategy rules introduction
  • 1:45 - Long entry rule
  • 1:55 - Short exit rule
  • 2:00 - Backtest results and performance metrics

Strategy overview

A moving average smooths price into a single trend line, but this strategy pairs it with a less common companion: Perry Kaufman's Efficiency Ratio (ER). ER answers a different question than a moving average does — not "which way is price sloping," but "how cleanly did it get there." It compares the net distance price traveled to the total path it actually walked, producing a value between 0 and 1: readings near 1 describe a straight, efficient move, while readings near 0 describe choppy, back-and-forth noise. That makes ER a trend-quality gauge, and combining it with a moving average is the angle this entry explores.

The strategy was decoded from Quantified Strategies' video "Kaufman Efficiency Ratio Trading Strategy (Backtest)", a channel whose framing is signaled in its own title: rules first, historical test second. The video works from the ground up — introducing what the Efficiency Ratio is, walking through how it is calculated, and then laying out the strategy's logic — and it operates on the Daily timeframe rather than an intraday one, positioning ER as a slower, once-a-day read on whether the market is trending efficiently or drifting.

There is a neat lineage here worth noting: the Efficiency Ratio is the same measurement that drives Kaufman's Adaptive Moving Average (KAMA), so using a raw ER reading alongside a plain moving average is a natural way to expose the noise-versus-signal idea directly instead of baking it into an adaptive line. As with any efficiency-gated approach, what the number is compared against — and how that gate interacts with the average — is what decides behavior; the concept and the source video are the focus of this page.

Topics

kaufman efficiency ratio · trading strategy · technical indicators · spy trading strategy · daily trading strategy · moving average strategy · trend trading strategy · pine script · tradingview strategy · spx trading strategy · efficiency ratio strategy

Frequently asked questions

What is the Kaufman Efficiency Ratio?

The Efficiency Ratio (ER), developed by Perry Kaufman, measures how efficiently price moved over a lookback window. It divides the net price change by the sum of the individual bar-to-bar moves, giving a value from 0 to 1 — close to 1 means a clean directional trend, close to 0 means choppy, noisy movement.

How does the Efficiency Ratio relate to moving averages?

ER is the engine behind Kaufman's Adaptive Moving Average (KAMA), which speeds up in efficient trends and slows down in noise. This strategy instead uses the Efficiency Ratio alongside a standard moving average, so the trend-quality reading acts as a separate condition rather than being built into the average itself.

What does the source video cover and who made it?

It was decoded from "Kaufman Efficiency Ratio Trading Strategy (Backtest)" by Quantified Strategies. The video explains what the Efficiency Ratio is, how it is calculated, and then introduces the strategy's rules, applied on the Daily timeframe with a backtest-oriented framing.

How can I test an Efficiency Ratio strategy before trading it?

Backtest it on historical daily data before risking capital, paying attention to the ER threshold and how it gates entries. Strategy Decoder extracts the structure of strategies like this one from video sources so you can evaluate and test the concept 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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