A method of processing signals in a rotary encoder of the kind which comprises at least one annular track of encoding regions arranged as an alternating pattern of first encoding regions and second encoding regions. The encoder including first and second detectors, each of which is arranged to produce a first alternating output signal as the track of encoding regions rotates about its axis past the detector. The detector identifying a usable pair of transitions and a rejectable pair of transitions and utilizing the pairs of transitions to produce a compensated position measurement for the rotary encoder.