S&P 500 Analysis & ETF Trading

[kiy]

Efficiency Ratio...
DIRECTION...get direction right...
George Lane's oscillator stochastics=measures the price of a security relative to the high/low range over a set period of time. The indicator oscillates ...

...same as stochTRIN=volitility moves in cycles...
Posted on Intro board...
The ER can be used as a stand-alone trend indicator to spot the most profitable trading opportunities. As one example, ratios above 0.30 indicate strong uptrends and represent potential buys. Alternatively, since volatility moves in cycles, the stocks with the lowest efficiency ratio might be watched as breakout opportunities.
http://www.sta-uk.org/members/Market%20Technician%20No%2057.pdf
Kaufman’s AMA
Perry Kaufman has worked more or less in the same direction as
Tushar Chande to develop the KAMA, an adaptive moving
average indexed to a particular “noise” indicator called Efficiency Ratio (ER) which he also developed. In the book in which he introduced the KAMA, Kaufman defines the price direction as the net price change over “n” periods and (defines)the volatility as the sum of all the day-to-day or hour-to-hour price changes (each taken as a positive number) over the same n periods the price direction was calculated. Then he defines the Efficiency Ratio (ER) as the ratio between the price direction and the volatility. This indicator obviously varies from 0 to 1. When the market moves in the same direction for all the n days then the price direction = volatility and the ER = 1; in this particular case the fastest possible moving average is surely the best choice to follow the market because it’s moving very fast in a clear direction. If the volatility is much greater than the price direction, the ER will be probably very close to 0 which means that the market is going nowhere and the more suitable moving average to follow is surely one of the slowest. In order to transform the ER into the trend speed, Kaufman has changed the ratio into a smoothing constant (c) for use in an exponential moving average. The smoothing constant and the KAMA formulas are then:
c = [ER * ( fastest – slowest ) + slowest]
2 KAMA0 = KAMA-1 + c * (C0 – KAMA-1)
The fastest value in the (c) formula is 0.667 and the slowest
0.0645.