What Is The Hurst Exponent

The Hurst exponent is used as a measure of long-term memory of time series. It relates to the autocorrelations of the time series and the rate at which these decrease as the lag between pairs of values increases. It tells you whether a series is

  • Geometric random walk (H=0.5)
  • Mean-reverting series (H<0.5)
  • Trending Series (H>0.5)

If H decreases towards zero, the price series may be more mean-reverting and if it increases more towards one, the price series may be more trending.

Hurst Exponent Indicator

The Hurst Exponent is an Oscillator indicator,  used as a measure of long-term memory of time series. The Hurst exponent is referred to as the “index of dependence” or “index of long-range dependence”. It quantifies the relative tendency of a time series either to regress strongly to the mean or to cluster in a direction.

How to calculate the Hurst Exponent

The Hurst exponent ‘H’ is nothing but the slope of the plot of each range’s log(R/S) versus each range’s log(size).

Here log(R/S) is the dependent or the y variable and log(size) is the independent or the x variable

Why use the Hurst Exponent

The Hurst exponent is used as a measure of long-term memory of time series. It quantifies the relative tendency of a time series either to regress strongly to the mean or to cluster in a direction.

How to Use The Hurst Exponent

Bullish Scenario:- If the Hurst value is more than 0.5 then it would indicate a persistent time series (roughly translates to a trending market).

Bearish Scenario:- If the Hurst Value is less than 0.5 then it can be considered as an anti-persistent time series (roughly translates to sideways market).

Building in Mudrex

Strategy:- 

BUY:- Hurst exponent crosses down 0.5

SELL:- Hurst exponent crosses up 0.5

TIME FRAME:- 2Hrs

Creating on Mudrex:- 

We will use 2 Hurst Exponent indicator blocks. One for selling and One for buying.

For buying we will use the following settings:-

For selling we will use the following settings:-

Final Strategy:-

Testing:- 

Running on Binance Futures: BTC/USDT with tick interval of 2H yielded an overall profit of 438.14%

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