What encoder? Post a link to the product page or data sheet.
How, exactly, did you connect the encoder to the Arduino? Post a hand drawn wiring diagram.
When experimenting with a new sensor, it is a great idea to use that sensor all by itself, with simple example code and without any other distracting things like motors, LCD displays, etc.
Connect the encoder according to one of the many on line tutorials (avoid Instructables, as most of them are crap), load the example program and twist the encoder shaft by hand to test it.