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The Hurst Coefficient and the Market #trading #markets #worden

August 15, 2013

From Wikipedia (www.wikipedia.com): “The Hurst exponent is referred to as the “index of dependence,” or “index of long-range dependence.” It quantifies the relative tendency of a time series either to regress strongly to the mean or to cluster in a direction.

A value H in the range 0.5 < H < 1 indicates a time series with long-term positive autocorrelation, meaning both that a high value in the series will probably be followed by another high value and that the values a long time into the future will also tend to be high.

A value in the range 0 < H < 0.5 indicates a time series with long-term switching between high and low values in adjacent pairs, meaning that a single high value will probably be followed by a low value and that the value after that will tend to be high, with this tendency to switch between high and low values lasting a long time into the future.

A value of H=0.5 can indicate a completely uncorrelated series, but in fact it is the value applicable to series for which the autocorrelations at small time lags can be positive or negative but where the absolute values of the autocorrelations decay exponentially quickly to zero.”

When Hearst coefficient (H) went below 0.5 the market trend slowed down and, later, went into correction mode.  The daily chart is logarithmic with a special purpose: To highlight trends during this period of time.

Disclaimer: Past performante does not guarantee similar future results.

 

Hurst Coefficient and the Market

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