Rotational direction is determined by the phase-difference between channels A and B, and thereby informs the processing unit whether to add or subtract the registered pulses. A reference pulse is also available on some encoder models to proof the correctness of the calculated position. Overall resolution is determined by the number of pulses per revolution. Special IC's are available that can double or quadruple the resolution.

Standard transistor encoder models provide an output signal whose level depends on the the supply voltage from the encoder. An internal pull-up resistor is used and is suitable for cable lengths up to 6 meters. Open collector outputs with external pull-up resistor are ideal where higher input levels are required. Linedriver outputs are ideal for transfer lengths up to 100 meters and offer better protection against electrical interferences during data transfer.