Directional Efficiency Ratio - indicator for MetaTrader 5

Efficiency Ratio (ER) was originally proposed by Perry Kaufman in his 1995 book Smarter Trading. It is calculated by dividing the price change over a period of time by the absolute sum of the price changes that would have occurred to achieve that change. The resulting ratio ranges between 0 and 1, with higher values ​​representing more efficient or trending markets.

This version is different from the original. Raw efficiency ratios do not show the direction/trend of price changes. This version shows direction and adds horizontal criteria to estimate whether the market is trending or range-bound. In this way, the indicator becomes a tool that not only shows market trends, but also the direction of the market. To aid estimation, a smoothing option has been added. With very gentle smoothing, trends can be estimated more easily and a large number of false signals can be avoided. To avoid smoothing, set the smoothing period to <= 1.

Attachment download

📎 efficiency_ratio_directional.mq5 (17 KB)

Source: MQL5 #19985