This filter looks at an instrument's trend-strength.
An instrument stuck in a trading range (lots of rally and pullbacks, or trading at nearly the same price for an extended period) will have a lower Kaufman Efficiency Ratio, while an instrument that is in a strong uptrend or downtrend (even if the price increment is not smooth, i.e. sometimes a much bigger rally than usual) will have a higher Kaufman Efficiency Ratio. So, this is a good filter to identify a strong trend.
Preferably, you use this filter with another filter that identifies a downtrend or uptrend (for example, the “Moving Average Cross Over Filter”).
1. The first parameter defines the period to calculate the Kaufman Efficiency Ratio. Adjust this according to your trading time-frame.
2. The second parameter defines whether the instrument's Kaufman Efficiency Ratio must be “Greater than” or “Less than” than threshold Kaufman Efficiency Ratio (that you'll define next).
3. The third parameter defines the threshold Kaufman Efficiency Ratio. The minimum value is 0, while the maximum is 1.
For example, you want to buy instruments whose Kaufman Efficiency Ratio is greater than 0.8 (a generally strong trend), then input 0.8 here and set the previous parameter to “Greater than”.
Once you applied this filter, you can see the “Efficiency Ratio” indicator displayed below the Price Chart (at the Instrument Tab).
This indicator's appearance depends on the filter's period setting, and if you applied more than one Kaufman Efficiency Ratio Filters, each with a different setting, there will be two indicators displayed on this chart.