Hurst Exponent Mean Reversion

Entry Logic

• Long Entry: The Hurst exponent is below 0.5, indicating mean-reverting behavior, and the price is at a recent low.
• Short Entry: The Hurst exponent is below 0.5, and the price is at a recent high.
• Confirmation: A reversal candle.
• Timeframe: Varies, as the Hurst exponent can be calculated on any timeframe.
• Location: At a recent high or low.
• Market Condition: Mean-reverting.

Exit Logic

• Profit Target: The mean of the recent price action.
• Scaling Out: No.
• Trailing Stop: No.
• Signal Failure: Exit if the Hurst exponent rises above 0.5, indicating a shift to a trending or random walk regime.
• Opposite Signal: Not applicable.
• Time Expiration: Based on the typical cycle length of the asset.
• Momentum Loss: Exit if the reversion stalls.

Stop Loss Structure

• Hard Stop: A new high or low.
• Soft Stop: If the Hurst exponent changes significantly.
• Max Dollar Loss: Varies.
• Max Percent Loss: 2%.
• Structural Stop: The recent high or low.

Risk Management Framework

• Risk Per Trade: 1%.
• Daily Limit: Not applicable.
• Weekly Limit: 4%.
• Max Drawdown: 15%.
• R:R Requirement: 2:1.

Position Sizing Model

• Sizing Approach: Fixed fractional.
• Volatility Adjustment: No.
• Conviction Sizing: No.
• Scaling In: No.
• Scaling Out: No.

Trade Filtering

• Market Conditions: Only when the Hurst exponent is below 0.5.
• Setups: Look for a low Hurst exponent combined with a price extreme.
• Instruments: Any.
• Time Restrictions: None.
• Chop/News Avoidance: Yes.

Context Framework

• Trend Direction: Not applicable.
• VWAP Relationship: Not applicable.
• MA Relationship: Not applicable.
• Range Location: At an extreme of a range.
• Higher TF Alignment: Not applicable.

Trade Management Rules

• Breakeven: After a 1R move.
• Scale Out: No.
• Add Size: No.
• Fast vs Slow Moves: Works for both.

Time Rules

• Optimal Window: Any.
• Times to Avoid: None.
• Session Notes: A way to mathematically identify mean-reverting markets.

Setup Classification

• A+ Setup: Hurst exponent below 0.4 at a major support/resistance level.
• A Setup: Hurst exponent below 0.5 with a reversal candle.
• B Setup: Hurst exponent just below 0.5.
• C Setup: Hurst exponent above 0.5.

Market Selection Criteria

• Instruments: Any.
• Volume: High.
• Volatility: Any.

Statistical Edge Metrics

• Win Rate: 60%.
• Avg Win: 2R.
• Avg Loss: 1R.
• Profit Factor: 1.8.
• Expectancy: +0.4R.

Failure Conditions

• Market Conditions: A shift from a mean-reverting to a trending regime.
• Specific Scenarios: When the market becomes more efficient and less predictable.

Psychological Rules

• Discipline: Must trust the output of the Hurst exponent calculation.

Advanced Components

• Regime Detection: The Hurst exponent is a regime detection tool.
• Filters: Only trade when the Hurst exponent is statistically significant.
• Correlation: Not applicable.
• MTF Alignment: Not applicable.

Location

• Strongest: In markets that have a clear cyclical or mean-reverting tendency.
• Weakest: In markets that are trending strongly or are a random walk.