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I also use this type of optical rotary encoder. It is much better and the feel is just perfect.
Between the encoder and the Radiuno I have a extra Arduino to adapt the pulses and divide them to not overrun the Radiuno.

I found a sketch by Jim Smith - G3ZQC and Glenn Percy - VK3PE to perform this task perfectly and only added some stuff for my project.

Try it !

Regards and 73's
PE1MHY
Guido