I came by this Hurst Indicator when I was looking for some other time series trading information. I thought it was worth adding to indicator database although I have not looked into using it myself as of yet. Hope it provides someone with a useful tool to trading.
Wiki states that “The Hurst exponent is used as a measure of the long term memory of time series, i.e. the autocorrelation of the time series. Where a value of 0 < H < 0.5 indicates a time series with negative autocorrelation (e.g. a decrease between values will probably be followed by another decrease), and a value of 0.5 < H < 1 indicates a time series with positive autocorrelation (e.g. an increase between values will probably be followed by another increase). A value of H=0.5 indicates a true random walk, where it is equally likely that a decrease or an increase will follow from any particular value (e.g. the time series has no memory of previous values)"
This is interesting to me as I work on the assumption that a new high in the market is followed by a new high and a new low will be followed by another new low. You will be more right than wrong working on that assumption.
When the Hurst exponent is near to 0.5 indicates a random walk where there is no correlation between any element and a future element and there is a 50% probability that future return values will go either up or down. Series of this type are hard to predict.
I actually believe that the random walk ‘signals’ maybe of benefit more than the trend as there are increasing trading instruments (binary bets etc) that offer good protection for trading random events. Just a thought.
Having done a search it seems a lot of harmonic traders use Hurst Exponent indicators in their trading. I guess this is a logical pairing as the patterns in harmonics often are directional so would be confirmed by readings on the Hurst scale.
However you trad the hurst exponent just keep in mind the three principles of :-
Value 0.5 – 1 = whatever is happening now is likely to continue
Value 0 – 0.5 = whatever is happening now is likely to reverse
Value around 0.5 = likely to go in any direction
As always traders “suggest” using it in forex trading systems but that could be because forex is the most traded market so naturally any indicator will be “best” used in such trading systems.
Free Download: Hurst Exponent Indicator For MT4