Hey team, Jacob here.
Originally formulated by hydrologist Harold Edwin Hurst to model Nile River reservoir storage and later adapted to quantitative finance by Benoit Mandelbrot, the Hurst Exponent (0≤𝐻≤1 0≤H≤1) quantifies long-term memory in a time series:
The Three Market States:
H=0.50 (Geometric Brownian Motion / Pure Random Walk):
Successive price changes are completely uncorrelated.
Directional signals here are pure coin flips with negative expected value once commissions and slippage are factored in.
H>0.50 (Persistent / Trend-Seeking Series):
Positive autocorrelation. An upward move is statistically more likely to be followed by another upward move.
Playbook: Breakouts, EMA pullbacks, momentum continuation, wide trailing stops.
H<0.50 (Anti-Persistent / Mean-Reverting Series):
Negative autocorrelation. An excursion in one direction is statistically followed by a snap back toward the mean.
Playbook: Bollinger Band fades, RSI/Stochastic oversold bounces, tight profit targets.
I have attached an ES futures trading system using Hurst here.
You will also need the Hurst indicator which can be downloaded here.
It trades on 1440-minute bars, would you trade it?
