McGinley Dynamic Indicator | Indicator Series

The McGinley Dynamic Indicator is an advanced moving average indicator that adjusts for a shift in the market speed. The Indicator was designed to have better tracking of the market compared to other existing moving averages. As developed by John R. McGinley, the McGinley Dynamic helps solve the issue of varying market speeds by providing a more accurate reflection of price action.

Features of The McGinley Dynamic indicator

As the case with moving averages indicators, the McGinley Dynamic indicator tells you about the security’s average price over a set period. Its characteristics include the following:  Click this link to access an economic calendar for your trading strategies

• Moving averages
• Market speed
• Market Prices

Calculation of The McGinley Dynamic indicator

McGinley Dynamic Indicator is calculated using the following formula:

MDi = MDI-1 + [Close – MDI-1 / N × (Close / MDi-1) ⁴ ]
Where:
MDI – Current McGinley Dynamic
MDI-1 – Previous McGinley Dynamic
The close – Closing price
N – the MA period

A crucial point to note is that the Indicator is very reactive due to its smoothing constant compared to other moving averages.

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What does the McGinley Dynamic Indicator Tell You?

The Indicator gives a better representation of the market dynamics and the price action speed. With such information, the trader can get a more responsive and smoother line on the chart.

The Indicator also gives you a more informed analysis to the extent possible in today’s market. This is because it utilizes more accurate price action information that responds to the market’s adjusting speed. Traders have the advantage of taking the lag out of the equation.

The McGinley Dynamic Indicator builds its foundation on the moving averages by eliminating the price elimination so that the price behavior is more accurately represented. McGinley Dynamic indicator formula allows the Indicator’s acceleration or deceleration to be focused solely on the price movements.

Application of McGinley Dynamic Indicator

When you put your trading to this Indicator, the following are the areas that you can use the Indicator in trading:

• Spotting an uptrend. When prices cross the Indicator from below and remain above it, an uptrend is on the card. Once a trader gets such information, they may consider closing their sell positions and going long.
• Spotting a downtrend. This happens when the price line cuts the Indicator from the above. Again, traders might consider closing their buying positions and prepare for the bear market by opening selling positions.
• Spotting a trend reversal. When there is an excessive deviation between the price bars and the Indicator’s line, a reversal trend may be looming.

NB: Before taking any action, it is always prudent to confirm the signal with other indicators.

Key Takeaways

• The McGinley Dynamic indicator is a type of moving average designed to track the market better than the existing averages.
• The McGinley Dynamic indicator solves varying market speeds by using an automatic adjusting factor formula that speeds, or slows, the Indicator in trending, or ranging, markets.
• The McGinley Dynamic indicator improves the conventional moving averages by minimizing price separations to reflect a more accurate price action.

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