The Hurst Exponent Smoothed indicator provides a dynamic analysis of market behavior by calculating the Hurst Exponent over a specified lookback period. This tool is especially useful for identifying whether a market is trending or mean-reverting.
Key Features:
Lookback Period: Set to 90 by default, this parameter controls how many periods the indicator considers for its calculations. Adjusting this value allows you to fine-tune the sensitivity of the indicator to recent price action. Market Analysis: The Hurst Exponent gives insights into the nature of price movement: A value near 0.5 suggests a random walk, indicating that the market is unpredictable. Values above 0.5 indicate a trending market where price movements exhibit persistence, suggesting that the current trend may continue. Values below 0.5 point to a mean-reverting market, where price movements tend to reverse, making it a potential signal for contrarian trading strategies. Usage:
Trend Following: When the Hurst Exponent is consistently above 0.5, it may indicate a strong trend. Traders can use this information to align with the current market direction. Mean Reversion: If the Hurst Exponent falls below 0.5, it could signal that the market is more likely to revert to the mean, offering opportunities for mean-reversion strategies. Visuals:
The indicator displays a smooth line oscillating between values, giving traders a clear visual cue for the current market condition. The script is optimized for various timeframes, as demonstrated on the BTCUSD pair on a 270-minute chart. Traders can adapt the lookback period based on their trading style and the specific asset being analyzed.
Open Source: This script is open-source and free to use. Feel free to customize and adapt it to your needs!