The Lopez Efficiency indicator analyzes how efficient is the current market movement based on the true high-low ratio of a certain number of bars.
- The ratio is the effectiveness of the market movement
- A ratio below 1 means the market is going nowhere
- A ratio above 1 means the market is starting to show directionality
- A ratio above 2 means the market is showing effective movement
- A ratio above 3 means the market moved too much: it will halt or retrace
It has straightforward trading implications.
- Look for positional opportunities when the line is red
- Look for range trading opportunities when the ratio is orange
- Look for trend trading opportunities when the ratio is blue