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An incremental encoder is a linear or rotary electromechanical device that has two output signals, A and B, which issue pulses when the device is moved. Together, the A and B signals indicate both the occurrence of and direction of movement. Many incremental encoders have an additional output signal, typically designated index or Z, which indicates the encoder is located at a particular reference position. Also, some encoders provide a status output (typically designated alarm) that indicates internal fault conditions such as a bearing failure or sensor malfunction. Unlike an absolute encoder, an incremental encoder does not indicate absolute position; it only reports changes in position and, for each reported position change, the direction of movement. Consequently, to determine absolute position at any particular moment, it is necessary to send the encoder signals to an incremental encoder interface, which in turn will "track" and report the encoder's absolute position. Incremental encoders report position changes nearly instantaneously, which allows them to monitor the movements of high speed mechanisms in near real-time. Because of this, incremental encoders are commonly used in applications that require precise measurement and control of position and velocity. An incremental encoder employs a quadrature encoder to generate its A and B output signals. The pulses emitted from the A and B outputs are quadrature-encoded, meaning that when the incremental encoder is moving at a constant velocity, the A and B waveforms are square waves and there is a 90 degree phase difference between A and B. At any particular time, the phase difference between the A and B signals will be positive or negative depending on the encoder's direction of movement. In the case of a rotary encoder, the phase difference is +90° for clockwise rotation and −90° for counter-clockwise rotation, or vice versa, depending on the device design.

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