HurstExponent Node
Measures trending vs mean-reverting behavior
Overview
Hurst Exponent (H) characterizes whether a time series is trending, mean-reverting, or random. H=0.5 indicates random walk. H>0.5 indicates persistent behavior (trending). H<0.5 indicates anti-persistent behavior (mean reverting). This single number tells you whether to use momentum or mean reversion strategies.
The Hurst Exponent is derived from rescaled range (R/S) analysis and quantifies long-range dependencies in data. It's more reliable than simple autocorrelation for detecting regime changes and helps traders adapt their strategies dynamically to current market conditions.
Formula & Calculation
H = 0.6+: Trending market (use momentum)
H = 0.4-: Mean reverting (use reversion)
H > 0.7: Strong trending (bubble/crash risk)
Parameters
| Parameter | Default | Description |
|---|---|---|
| lookback | 100-500 | Periods for Hurst calculation |
| method | RS | Calculation method (RS or DFA) |
Common Use Cases
1. Strategy Selection
H>0.55: Use momentum/trend-following strategies. H<0.45: Use mean reversion. H near 0.5: Avoid both or use oscillators.
2. Market Regime Detection
Track Hurst monthly to detect regime shifts. Rising Hurst signals transition from mean reverting to trending markets.
3. ATR Adjustment
Increase position size when Hurst is high (trending), reduce when low (mean reverting). Match position size to market regime.
4. Divergence Detection
When price makes new high but Hurst falls, suggests ending trend. Vice versa for bottoms. Potential reversal warning.
Advantages & Limitations
Advantages
- Distinguishes trending from mean reverting
- Guides strategy selection
- Quantitative regime detection
- Works well with other indicators
Limitations
- Ambiguous at 0.5 (hard to interpret)
- Requires large sample (100+ bars min)
- Unstable over time
- Different methods give different results