The Hurst Exponent indicator keeps track of the volume memory of the price. It uses mean reversion and can spot trending and ranging markets.
This guide will discuss the Hurst Exponent and how you can trade with it.
What is the Hurst Exponent indicator?
The Hurst Exponent uses the volume data to talk about the direction of the trend. The Hurst Exponent was used in the studies of the river Nile in the late 1800s, and one of the leading researchers in the studies was Harold Edwin Hurst, hence the name. The exponent is donated by “H.”
At first look, the Hurst Exponent looks like an oscillator; however, it’s different from the standard oscillator. It measures the volume possibility of moving in a particular direction.
The 0.5 level is the most important level to look for. If the H value is between 0 and 0.5, a high value is followed by a low value, suggesting a bearish trend. We’ll likely see a bullish trend if the H value is between 0.5 and 1. If the price is at 0.5, this signifies a ranging market.
How to trade the Hurst Exponent indicator?
As mentioned above, the 0.5 level is important when trading with the Hurst exponent. If the value of H falls between 1 and 0.5, we can expect bearish momentum. At this point, the Hurst Exponent is close to its highest level and will fall towards 0.5.
On the flip side, if the value of Hurst climbs above 0.5 and travels between 0.5 and 1, there is a bullish momentum.
In the chart above, you can see the value of H is between 0 and 0.5. We had bullish momentum here, so we could enter the trade.
It’s important to note that sometimes even if the value lies between 0.5-1 and 0-0.5, the price may not reverse. So, it’s good to add a further signal confirmation before entering any trade.
Although you can apply the Hurst Exponent indicator on all timeframes, it’s best to apply it on longer timeframes to reduce the market noise.
Buy Signal
- The value of Hurst must be between 0.5 and 1.
- You should wait for the price to continue upwards and then enter the trade.
- You could exit the trade when the value of H reaches close to 1.
- You could set a stop-loss near the recent low.
Sell Signal
- The value of Hurst must be between 0.5 and 0.
- You should wait for the price to continue downwards and then enter the trade.
- You could exit the trade when the value of H reaches close to 0.5.
- You could set a stop-loss near the recent high.
Conclusion
The Hurst Exponent indicator applies to mean reversion to discuss the trend’s direction. The 0.5 level is the most important level to look for when trading with the indicator. It will work better when used alongside other indicators and price action. As with all forex trading strategies, you will need excellenet money management to improve your chances of success.
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