Hurst Exponent – finding the right market for your trading strategy

The Hurst exponent is a measure for the behaviour of the market. It shows if the market behaves in a random, trending or mean-reversion manner. This can be used to select the right trading strategy for your market.

Hurst Exponent

hurst spx

hurst exponent spx

The hurst exponent describes the self similarity of a market. Self similarity describes how similar past market snippets are to current ones.  A Hurst exponent of 0.5 means that the market, over the long term,  follows a random walk. In this case, in the long run, any trading strategy would be a zero sum game (excluding commissions).

If the Hurst exponent is above 0.5, the market shows a trending behaviour. Past moves are similar to current moves. Markets with a high Hurst exponent are perfect for trend following strategies. If the market went up in the past, there will be a better than 50% chance that it also moves up in the future.

If the Hurst Exponent is below 0.5, the market shows a reverting behaviour. If it went down in history, there is a good chance that it will reverse its direction in the future. These markets are markets for mean reverting strategies and short term reversal pattern analysis.

The picture above shows the Hurst exponent for several time-frames of the SPX. On intraday data (the last 1000 bars have been used for the calculation) the Hurst exponent is below 0.5. So be careful with trend following strategies on intraday data.

On weekly and monthly data the market clearly shows a trending behaviour, If there is a rising week or month, there will be a good chance that also the next week or month will move up.

Hurst Exponent market overview

Hurst market overview

Hurst market overview

Running a scanner over different markets and time frames gives an interesting insight in different markets. On the picture above 1000 bars of daily data is used on the left side, and 1000 bars of hourly data is used on right side.

As it can be seen, Bitcoin surely is the best market to do trend following strategies. It has got a Hurst exponent above 0.5 on both time frames.

A completely different market behaviour is shown with EUR/USD. This market shows a reverting behaviour on daily and hourly charts.

See the chart below: A mean reverting strategy surely would have had some edge with EURUSD (left), while a trend following strategy would have been the right thing for Bitcoin(right)

Hurst Exponent Bitcoin EUR

Hurst Exponent Bitcoin EUR

Tradesignal Coding

To use the Hurst analysis with your own markets you can use the code shown below. It is for private use and research only!

The code uses the python Hurst package to do the calculation. This code is embedded within the Tradesignal Equilla coding, which does the graphical output and takes care of the data.

When you intend to use the code with your Tradesignal make sure to have python and the needed packages installed.

Hurst Tradesignal Indicator

Hurst Tradesignal Indicator

To customise the indicator it has got several settings.

Use the period setting to define how much data should be used for the calculation (number of bars). If set to 0 all data on the chart will be used.

The Plot R/S.. setting can be switched to true to show the R/S analysis. It describes how self similar the data is over different time intervals. Please see Wikipedia for further information

The recalc setting defines after how many bars the calculation is updated.

Get the code

Please acknowledge that you are a private investor and will use the code only for research by typing “hurst” as password on the code download page

Thanks to www.tradesignal.com for the great software.

Free Webinar on Hurst

See more on the Hurst exponent and R/S analysis in my free webinar in February. Register and see dates

RSI Hellfire Heatmap Indicator

Chart analysis is all about visualizing data. The RSI hellfire indicator uses a heat-map to visualizes how overbought or oversold the market is on a broad scale. This helps to get a broad picture of the current market setup.

Multiple Time-frame Relative Strength Index

Wells Wilder’s RSI is an old timer of technical indicators. It tries to find out if markets are overbought or oversold. Usually it is calculated using a 14 bar setting. But a 14 bars RSI on a daily chart will give a different reading than 14 bars on an hourly or weekly chart. As it is always nice to see what traders on a different time-frame see on their charts, you could simply display several RSI settings on your chart. Continue reading

Bitcoin – end of the bullish bubble

Bitcoin has come a long way but now it is time to say good bye.

Being a trend following trader on the long side, the chart right now suggest anything else but a trend following long strategy. It might all look completely different in a few weeks or months, but right now the bitcoin market is done. The ichimoku scanner indicator still shows 100% bullish, but have a look at the history and the formed indicator-market patterns:  As marked on the chart we can see a nice bearish divergence. This is not a long entry signal!

 

Lower highs, lower lows; goodbye bitcoin, loved to trade you, but with a bearish behavior like now you are not my friend any more.

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Bitcoin Trading Strategy – review of returns

Bitcoin is not as bullish as it used to be. May it be due to fundamental reasons like transaction cost and slow speed, or maybe the herd found a new playground, whatever it might be, it is a good time to have a look how my bitcoin trading strategy performed.

The bitcoin trading strategy uses two moving averages for the trend detection, and, when the averages say bullish, the strategy will buy if the market moves above it`s old swing high.

The position is protected with an exit at the last swing low and a 3% trailing stop.

But have a look how this simple strategy performed over the last two years:

Trading on a daily timeframe and investing 10000€ with each entry, the strategy managed to get more than a 100% return over the last 2 years.

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Bitcoin Handelsstrategie

Die Cryprowährung Bitcoin ist zurück!

Sie erlebte ihren Hype vor 2014, doch ging es seitdem fast nur noch bergab. Nach den Hochs um 1000$ für einen Bitcoin Ende 2013 verfiel der Preis bis auf 150$. Doch diese Zeiten scheinen vorbei zu sein, bitcoin is back!

Bitcoin Chart Analyse

Der Chart zeigt den Bitcoin / USD Verlauf der vergangenen 3 Jahre. Es spring sofort ins Auge, dass die lanfristige  fallende Trendlinie im Juni 2015 gebrochen wurde. Seitdem ist neben den Kursen auch das gehandelte Volumen stark am Steigen. (Kurs- und Volumsdaten von  bitstamp.net)

Bitcoin Chartanalyse

Noch immer ist die Volatilität des Marktes extrem hoch, Bitcoin ist ein reines Spekulationsobjekt, beliebt bei Leuten mit Hang zur Weltverschwörung.  Dies sind die besten Voraussetzungen dafür, dass eine automatisches Bitcoin Handelssystem funktionieren kann. Die hohe Volatilität ermöglicht zudem mit geringem Kapitaleinsatz ansprechende Gewinne.

Bitcoin Handelsstrategie

ich bin nicht an die Börse gegangen um mir den ganzen Tag Gedanken über Trendlinien zu machen, ein automatischen Handelssystem für Bitcoin ist da schon eher mein Ding.

Meine Bitcoin Handelsstrategie basiert auf klassischem Swing Trading. Die Strategie selbst wurde auf von mir auf der IFTA Konferenz in Tokyo vorgestellt, IFTA Mitglieder können den vollständigen Systemcode auf der Webseite http://www.ntaa.or.jp/ laden.

Die Basis des System sind die Swing Punkte.

Bitcoin Swing Points

Eine programmierte Definition dieser Punkte finden Sie im Swing Point Stop

Kombiniert man diese Swing Punkte mit einer einfachen Trenderkennung, ergibt sich ein hoch profitables Bitcoin Handelssystem.

Bitcoin Trading Strategy

Bitcoin Handels Regeln:

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Bitcoin Revolution

bitcoin revolution

Cryptowährung Bitcoin

Die digitale Währung Bitcoin scheint nicht mehr aufzuhalten. Immer stärker wird die Verzahnung mit der Realwirtschaft, immer mehr Händler nehmen Bitcoin als Zahlungsmittel, immer mehr institutionelle Anleger können diesen Markt nicht mehr ignorieren.

Ich verbrachte die letzten 2 Tage mit Davide Capoti, Emanuele Colacchi und Matteo Maggioni in Rom. Die 3 sind institutionelle Commodity Händler für einen der größten italienischen Marktteilnehmer.  Und als professionelle Händler schrieben Sie eines der professionellsten Bücher zu diesem Thema, derzeit leider nur auf italienisch erhältlich.

Bitcoin Trading

Das Buch Bitcoin Revolution ist in 3 große Abschnitte geteilt.

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