How to detect whether price movements are predictable or not

Difficulty

Section

Artificial Intelligence

How to detect whether price movements are predictable or not

Updated on 2011-03-18 05:48:35

Share |

One way to do that is by using the Hurst exponent. Referred to as the "index of dependence", the Hurst exponent measures the long-term memory of time-series, that is, their autocorrelation.

Steps

- Download the Hurst exponent indicator from Estimation of the Hurst Exponent - Trading Indicator.
- Once the trading indicator is downloaded, click on "Display" in the new form.
Alternatively, you can create a new pane on a chart by right clicking on it then selecting "Create a new pane". In this new pane, add the new indicator (Hurst).

Interpretation of the Hurst exponent

Between 0 and 0.5: The security is predictable. A decrease in the security price is likely to be followed by an increase (Negative autocorrelation)
Around 0.5: The security or stock price is unpredictable (Random walk)
Between 0.5 and 1: The security is predictable. An increase in the security price is likely to be followed by another increase (Positive autocorrelation).

Example of trading rule based on the Hurst exponent

randomwalk = sma(Hurst(), 10) > 0.49 and sma(Hurst(), 10) < 0.51;

Try QuantShare trading software for FREE

no reviews (Log in)

Other how-to articles

How to detect stocks trading near all time highs

How to change volume bar colors when the price closes down

How to perform a basic quantitative analysis using the S&P 500

How to plot a time-series that do not update the chart scale

How to create a real-time watchlist

How to download a trading item from the Sharing Server

How to download historical EOD data for penny stocks

How to get fundamental data for U.S. Stocks

How to debug a downloader


Product QuantShare Features Create an account Affiliate Program	Support Contact Us Trading Forum How-to Lessons Manual	Company About Us Privacy Terms of Use Copyright © 2024 QuantShare.com	Social Media Follow us on Facebook Follow us on Twitter Follow us on Google+ Trading Items

Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.