FTB-C000330 / Formula component

Efficiency Ratio

Efficiency Ratio is absolute directional change divided by the sum of absolute one-step changes over the same lookback.

Also known asKaufman ER

Intermediate Formula defined 1 linked topicPublished

Definitions

In plain terms

It approaches one for a direct path and zero when net movement is small relative to back-and-forth movement.

Technical

The implementation freezes lookback endpoints, valid observations, zero-path policy, timestamps, and adjustment basis.

Scope

It measures path efficiency, not market efficiency or future profitability.

Formula

ER_t = abs(x_t - x_(t-n)) / sum(abs(x_i - x_(i-1)))
LaTeX: ER_t=\frac{|x_t-x_{t-n}|}{\sum_{i=t-n+1}^{t}|x_i-x_{i-1}|}
SymbolMeaningUnit
xordered input seriesinput unit
nefficiency lookbackobservations

Output unit: ratio

Examples

  • A governed lesson uses Efficiency Ratio only with declared inputs, timing, parameters, and edge-case behavior.

Common misconceptions

  • It measures path efficiency, not market efficiency or future profitability.

Concept relationships

Prerequisites

Related

Required by

Where this concept is used

Tutorials planned

These catalogued topics use this concept, but their complete build has not shipped yet.

  • D07-F01-A08 Prerequisite

Evidence and governance

  1. Kaufman Adaptive Moving Average TA-Lib · first party technical publication

    Supports: preferred label, short definition, technical definition, formula

    Limits: Implementation seeding, readiness, and parameter defaults must be frozen for reproducible parity.

Reviewed by
fintech-builder-batch-006
Last reviewed
2026-07-27
Next review
2027-07-27
Record status
published
Written by

Fintech engineer building market-data and financial systems, and the author of every article, glossary record, and reference implementation on The Fintech Builder.