OPEN-SOURCE SCRIPT
Quant Signals: Market Sentiment Monitor HUD
Wavelets & Scale Spectrum
This indicator is ideal for traders who adapt their strategy to market conditions — such as swing traders, intraday traders, and system developers.
Wavelets are like tiny “measuring rulers” for price changes. Instead of looking at the whole chart at once, a wavelet looks at differences in price over a specific time scale — for example, 2 bars, 4 bars, 8 bars, and so on.
The scale spectrum is what you get when you measure volatility at several of these scales and then plot them against scale size.
This approach works like a microscope, revealing whether the market’s behaviour is consistent across short-term and long-term horizons, and when that behaviour changes.
This tool applies a wavelet-based scale-spectrum analysis to price data to estimate three key market state measures inside a rolling window:
Hurst exponent (H) — measures persistence in price moves:
Volatility (σ) — the average size of price swings at your chart’s timeframe, optionally annualized. Rising volatility means larger price moves, falling volatility means smaller moves.
Fit residual — how well the observed multi-scale volatility fits a clean power-law line. Low residual = stable behaviour; high residual = structural change (possible regime shift).
This indicator is ideal for traders who adapt their strategy to market conditions — such as swing traders, intraday traders, and system developers.
- Trend-followers can use it to confirm trending conditions before entering.
- Mean-reversion traders can spot choppy markets where reversals are more likely.
- Risk managers can monitor volatility shifts and regime changes to adjust position size or pause trading.
It works best as a market context filter — telling you the “weather” before you decide on the trade.
Wavelets are like tiny “measuring rulers” for price changes. Instead of looking at the whole chart at once, a wavelet looks at differences in price over a specific time scale — for example, 2 bars, 4 bars, 8 bars, and so on.
The scale spectrum is what you get when you measure volatility at several of these scales and then plot them against scale size.
- If the spectrum forms a straight line on a log–log chart, it means price changes follow a consistent pattern across time scales (a power-law relationship).
- The slope of that line gives the Hurst exponent (H) — telling you whether moves tend to persist (trend) or reverse (mean-revert).
- The height of the line gives you the volatility (σ) — the average size of moves.
This approach works like a microscope, revealing whether the market’s behaviour is consistent across short-term and long-term horizons, and when that behaviour changes.
This tool applies a wavelet-based scale-spectrum analysis to price data to estimate three key market state measures inside a rolling window:
Hurst exponent (H) — measures persistence in price moves:
- H > ~0.55 → market is trending (moves tend to continue).
- H < ~0.45 → market is choppy/mean-reverting (moves tend to reverse).
- Values near 0.5 indicate a neutral, random-walk-like regime.
Volatility (σ) — the average size of price swings at your chart’s timeframe, optionally annualized. Rising volatility means larger price moves, falling volatility means smaller moves.
Fit residual — how well the observed multi-scale volatility fits a clean power-law line. Low residual = stable behaviour; high residual = structural change (possible regime shift).
Open-source script
In true TradingView spirit, the creator of this script has made it open-source, so that traders can review and verify its functionality. Kudos to the author! While you can use it for free, remember that republishing the code is subject to our House Rules.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Open-source script
In true TradingView spirit, the creator of this script has made it open-source, so that traders can review and verify its functionality. Kudos to the author! While you can use it for free, remember that republishing the code is subject to our House Rules.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.