Hurst Exponent

9 mars 2021

My first try to implement Full 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

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.

In short, depending on the value you can spot the trending / reversing market.

• Values 0.5 to 1 - market trending
  
• Values 0 to 0.5 - market tend to mean revert
  

Hurst Exponent is computed using Rescaled range (R/S) analysis.
I split the lookback period (N) in the number of shorter samples (for ex. N/2, N/4, N/8, etc.). Then I calculate rescaled range for each sample size.
The Hurst exponent is estimated by fitting the power law. Basically finding the slope of log(samples_size) to log(RS).

You can choose lookback and sample sizes yourself. Max 8 possible at the moment, if you want to use less use 0 in inputs.

It's pretty computational intensive, so I added an input so you can limit from what date you want it to be calculated. If you hit the time limit in PineScript - limit the history you're using for calculations.


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Disclaimer
Please remember that past performance may not be indicative of future results.
Due to various factors, including changing market conditions, the strategy may no longer perform as good as in historical backtesting.
This post and the script don’t provide any financial advice.