--- title: "What Is the Efficiency Ratio in Trading?" term: "Efficiency ratio" type: glossary_term canonical: https://www.moonwire.org/insights/glossary/efficiency-ratio.html --- # What Is the Efficiency Ratio in Trading? > A 0-to-1 measure of how directly price travelled: the net move over a window divided by the total distance covered bar by bar. Near 1 is a clean trend, near 0 is chop. The **efficiency ratio** (ER) was introduced by Perry Kaufman as the engine of his adaptive moving average. It answers a simple question: of all the ground price covered, how much of it actually got anywhere? ## The formula Over a lookback of *n* bars: - **Net change** = the absolute difference between the latest close and the close *n* bars ago. - **Path length** = the sum of the absolute bar-to-bar close changes across the same window. - **Efficiency ratio** = net change ÷ path length. Because both parts are measured in the same units, the ratio is scale-free: it reads the same on Bitcoin at 70,000 and on a token at 0.50, and on a 3-day chart as on a monthly one. ## Two extreme examples - Price rises by 1 on each of ten bars. Net change is 10, path length is 10, so ER = **1.00** — perfectly direct travel. - Price alternates +2, −2, +2, −2 for ten bars. Net change is 0, path length is 20, so ER = **0.00** — lots of movement, no progress. Real markets sit in between, and the interesting signal is usually the *change* in the ratio: a trend that keeps its direction while its efficiency falls is covering more ground to get less far. ## How MoonWire uses it Our [multi-timeframe reads](https://www.moonwire.org/insights/glossary/multi-timeframe-analysis.md) compute ER over the last 10 closes on each timeframe and label trend strength from it: **strong** at 0.50 or above, **moderate** from 0.30, **weak** below 0.30. Direction comes separately from price versus its [moving average](https://www.moonwire.org/insights/glossary/moving-average.md), so a chart can be "up, weak" — rising, but inefficiently. Two published readings show the range. On [4 August 2026](/insights/btc-technical-read-2026-08-04.html) Bitcoin's 3-day trend flipped up on an ER of about 0.03, the least directional travel anywhere on that week's board. On [3 September 2026](/insights/eth-technical-read-2026-09-03.html) Ethereum's 3-day ER fell to 0.60 — lower than the week before, but still in trending territory. ER describes the path already taken. It does not say whether the next bars will be efficient. ## Further reading - [StockCharts ChartSchool: Kaufman's Adaptive Moving Average](https://chartschool.stockcharts.com/table-of-contents/technical-indicators-and-overlays/technical-overlays/kaufmans-adaptive-moving-average-kama) ## Where this appears in MoonWire analysis - [What Is the Efficiency Ratio in Trading? Kaufman's Measure, With Real Readings](https://www.moonwire.org/insights/what-is-the-efficiency-ratio-in-trading.md) — Sep 12, 2026 - [Solana: the 3D floor retreated to a nine-touch level 27% below price as the weekly ceiling closed to 9.44%](https://www.moonwire.org/insights/sol-technical-read-2026-09-10.md) — Sep 11, 2026 - [Ethereum: the monthly trend has turned up for the first time in this stream's record, taking alignment to aligned_up](https://www.moonwire.org/insights/eth-technical-read-2026-09-10.md) — Sep 11, 2026 - [Bitcoin: all three timeframe scans now name the same resistance shelf, 82,575 to 82,850](https://www.moonwire.org/insights/btc-technical-read-2026-09-10.md) — Sep 11, 2026 - [Solana: a new 3D pivot at 110.60 has filled part of the 45% stretch that was empty a week ago](https://www.moonwire.org/insights/sol-technical-read-2026-09-03.md) — Sep 11, 2026 - [Ethereum: the weekly scan has compressed to a 2.85% band - 0.30 of one ATR, the tightest cell on the board](https://www.moonwire.org/insights/eth-technical-read-2026-09-03.md) — Sep 11, 2026 - [Bitcoin: the converged 80,600 floor has left both the 3D and weekly ledgers as price gives back 4.54%](https://www.moonwire.org/insights/btc-technical-read-2026-09-03.md) — Sep 11, 2026 - [Solana: four resistances left the 3D ledger at once - nothing is listed now until 147.825](https://www.moonwire.org/insights/sol-technical-read-2026-08-25.md) — Aug 29, 2026 - [Ethereum: RSI 74.27 on the 3D is the highest reading in this week's nine-cell board](https://www.moonwire.org/insights/eth-technical-read-2026-08-25.md) — Aug 29, 2026 - [Bitcoin: the 3D and weekly scans have resolved to the same 2.79%-wide band, with price 0.20% off its floor](https://www.moonwire.org/insights/btc-technical-read-2026-08-25.md) — Aug 29, 2026 - [Solana: the 76.165 shelf that anchored both the 3D and weekly ledgers has left them](https://www.moonwire.org/insights/sol-technical-read-2026-08-18.md) — Aug 29, 2026 - [Ethereum: the 3D and weekly resistance readings that converged last week have separated again](https://www.moonwire.org/insights/eth-technical-read-2026-08-18.md) — Aug 29, 2026 --- *MoonWire surfaces and summarizes public crypto news.* **General information only — not financial advice.** MoonWire Ltd. is not licensed by ASIC and holds no AFSL. 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