Description
The PZ Lopez Efficiency Indicator is designed to measure the efficiency of price movement over a given number of bars. It calculates how many typical true ranges the market has moved compared to its total directional movement. This ratio reveals whether price action is directional or choppy.
Here’s what the values typically mean:
- Below 1 – Market is inefficient and likely consolidating
- Around 1–2 – Price action is beginning to show direction
- Above 2 – Market is efficiently moving in one direction (good for trend trading)
- Above 3 – Market may be overextended and due to pause or retrace
The indicator uses simple color codes for clarity:
- Red – Suggests range or sideways movement (look for positional setups)
- Orange – Indicates choppy or early trend conditions (range trading favorable)
- Blue – Implies efficient price action (trend trading favorable)
It works across all instruments and timeframes and is particularly useful for traders who want to time when to engage with trend-based strategies and when to wait or switch to range setups.
Input Parameters
- Period – Number of bars to evaluate the true range and directional movement (default: 14)
Disclaimer
This indicator is a tool for technical analysis only and is designed to assist in chart interpretation. It does not constitute financial advice, investment recommendation, or any guarantee of results. Trading involves a high risk of loss and can result in the loss of your entire capital. Use this indicator at your own risk and only with money you can afford to lose. For complete details, please read our Terms and Conditions.
