Market Efficiency Ratio [Interakktive]
A diagnostic tool that decomposes price movement into directional progress versus wasted oscillatory movement. Quantifies what proportion of price's total travel distance represented genuine directional advancement versus sideways chop, enabling traders to differentiate trending efficiency from consolidation waste.
Key Features
- ✓Efficiency Ratio calculation (0-100 scale)
- ✓Net Displacement measurement
- ✓Path Length tracking (total distance traveled)
- ✓Chop Cost quantification
- ✓Visual efficiency zones (Green ≥70%, Yellow 30-70%, Red <30%)
- ✓Customizable lookback and smoothing parameters
Use Cases
- →Differentiate clean trending periods from messy consolidation phases
- →Understand relationship between total movement and productive progress
- →Identify high-chop environments presenting elevated trading difficulty
- →Assess trend quality without volume dependence
- →Support foundation work for advanced regime detection systems
Technical Details
Net Displacement = |Close[current] - Close[N bars back]|; Path Length = Sum of bar-to-bar absolute changes; Efficiency Ratio = Net Displacement ÷ Path Length; Chop Cost = Path Length - Net Displacement. Default: 14-bar lookback, 5-bar EMA smoothing.
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