Movement Efficiency - [Rider Algo]

Movement Efficiency v2 — Rider Algo

Developed by Rider Algo

🔬 WHAT IS THIS INDICATOR?
Movement Efficiency measures how much of the market’s total movement actually translates into net directional progress.

In simple terms:
Is price advancing cleanly toward a destination, or thrashing around going nowhere?

Most oscillators tell you how far or how fast price moved.
This one asks a different question: how efficiently did it move?

• A market that travels 1,000 points to advance 800 points net = clean trend.
  
• A market that travels 1,000 points but only advances 100 points net = chop (even if candles look “exciting”).
  

This distinction is critical for choosing the right strategy at the right time.

---

📐 HOW IT WORKS
The indicator combines two layers of analysis:

Layer 1 — Efficiency Ratio (Kaufman’s ER)
The foundation is a well-known formula from quantitative finance:

ER = |Close − Close[n]| / Σ|Close − Close[1]| over n bars

This produces a value between 0 and 1:

• ≈ 1.0 → price moved in a straight line (maximum efficiency).
  
• ≈ 0.0 → price moved a lot but ended near where it started (pure noise).
  

Layer 2 — Wick Absorption Penalty (Microstructure Enhancement)
Classic ER has a blind spot: it only uses closing prices.

Two candles can have identical closes but tell totally different stories:

• Strong body + tiny wicks = clean push
  
• Tiny body + massive wicks = absorption / rejection
  

This indicator:

• Computes a wick-to-body ratio per bar
  
• Averages it over the lookback
  
• Applies a soft penalty (square root to avoid over-punishment)
  
• Outputs an adjusted efficiency score that detects “dirty” advances classic ER misses
  

---

🎯 THREE MARKET REGIMES
The indicator classifies the market into three zones:

🟢 TREND ZONE (green background)
Efficiency is above the trend threshold → price is advancing cleanly with minimal noise.
Best environment for trend-following (breakouts, MA crosses, momentum).

Directional triangle signals:

• ▲ Green triangle = Bullish trend detected (upward efficient advance)
  
• ▼ Red triangle = Bearish trend detected (downward efficient decline)
  

🔴 CHOP ZONE (red background)
Efficiency is below the chop threshold → lots of movement, no progress.
Danger zone for trend-followers (whipsaws, failed breakouts, stop hunts).

• ▼ Orange triangle = Market entering chop regime
  

🟡 TRANSITION ZONE (no background)
Efficiency is between thresholds → market is shifting.
Watch for the next triangle to confirm direction.

---

⚙️ ASSET PROFILES (Pre-Tuned Thresholds)
Different assets have different “normal” efficiency. The indicator includes four profiles:

• Crypto / High Volatility — relaxed thresholds
  Trend: 0.40 | Chop: 0.18
  Designed for assets where large wicks and volatility are normal.
  
• Stocks / Medium Volatility — balanced thresholds
  Trend: 0.48 | Chop: 0.22
• Forex / Low Volatility — stricter thresholds
  Trend: 0.55 | Chop: 0.28
  Forex tends to print cleaner candles → higher bar for “trend”.
  
• Custom — set your own thresholds for any instrument/timeframe.
  

---

📊 INFORMATION PANEL
The top-right dashboard shows:

• Efficiency — current adjusted efficiency score (0 to 1)
  
• Regime — TREND ▲ (bull), TREND ▼ (bear), CHOP ✗, or TRANSITION ~
• Percentile — where current reading sits vs last 200 bars
  Example: 85% = higher efficiency than 85% of recent history
  
• Wick Noise — average wick-to-body ratio (higher = more absorption/rejection)
  
• Profile — active asset profile
  

---

🔧 KEY SETTINGS

• Efficiency Period (default: 10) — lookback window
  Lower = more reactive | Higher = smoother
  10 works well for weekly charts, 14 for daily.
• Smoothing Length (default: 3) — EMA applied to final output
  Reduces noise without significant lag.
  
• Wick Penalty Weight (default: 0.25) — how aggressively wicks reduce efficiency
  0 = classic ER only | toward 1.0 = stricter microstructure filtering
  
• Color Mode — Gradient (continuous red→green) or Zones (discrete + directional bias)
  
• Show Raw ER — overlay classic ER (no wick penalty) for comparison
  

---

💡 PRACTICAL APPLICATIONS

1) Strategy Selection Filter
Use as a meta-filter above your main strategy:

• Only take trend-following setups in TREND (green)
• Only take mean-reversion setups in CHOP (red)

This can dramatically reduce false signals.

2) Regime Change Early Warning
Watch for transitions:

• CHOP entry (orange triangle)
  
• Then a trend triangle (green/red)
  

These often precede strong moves (consolidation → expansion).

3) Trend Quality Assessment
Not all trends are equal:

• 0.65 + low wick noise = higher reliability
  
• 0.42 + high wick noise = “dirty” trend / less trustworthy
  

Use Percentile to contextualize.

4) Risk Management
If efficiency drops from TREND into TRANSITION, consider:

• Reducing position size
  
• Tightening stops
  
• Avoiding aggressive breakout chasing
  

---

⚠️ IMPORTANT NOTES

• This indicator does NOT repaint. Uses confirmed bar data + current bar → safe for backtesting and live trading.
  
• Not a buy/sell signal generator. It identifies the market regime so you can choose the right approach.
  
• Defaults are calibrated for crypto on weekly timeframes. For other assets/timeframes, start with the correct Asset Profile.
  
• No single indicator is a complete trading system. Always use risk management + confirmation.