What is the McGinley Dynamic?

By Investopedia Staff AAA
A:

The McGinley Dynamic is a little known technical indicator developed by John McGinley in 1990. The indicator attempts to solve a problem inherent in moving averages which use fixed time lengths (ie. a 10 or 21 period moving averages), a problem that causes those moving averages to be outrun in fast markets. The speed of the market is not consistent; it frequently speeds up and slows down. Traditional moving averages fail to account for this market characteristic. The McGinley Dynamic solves this problem by incorporating an automatic adjustment factor into its formula which speeds or slows the indicator in trending or trading markets.

The main benefits of using the McGinley Dynamic are that; (1) it can rise in the face of falling data, (2) it does not get whipsawed as frequently as traditional moving averages, (3) it is capable of "hugging" the index as closely as desired, and (4) when the Index speeds up, the average speeds up as well, and vice versa.

(For more, see our Technical Analysis Tutorial)

This question was answered by Lovey Grewal.

RELATED FAQS

  1. What trends and data influence after-hours traders the most?

    Learn about the specific information that after-hours traders review to influence their trading.
  2. What are some common traits of undervalued stocks?

    There are a few basic factors found in companies that are worth more than their current stock price.
  3. What are the best indicators for evaluating technology stocks?

    Technology stocks are often some of the most discussed stocks on the news. How can investors spot the company that will roll ...
  4. What technical indicators can I use to find undervalued stock?

    Investors seeking new ideas may want to look to technical analysis to see whether the market has undervalued a particular ...
RELATED TERMS
  1. Forex Spread Betting

    A category of spread betting that involves taking a bet on the ...
  2. Mass Index

    A form of technical analysis that looks at the range between ...
  3. Money Flow Index - MFI

    A momentum indicator that uses a stock’s price and volume to ...
  4. On-Balance Volume (OBV)

    A momentum indicator that uses volume flow to predict changes ...
  5. Negative Volume Index - NVI

    A technical indicator that relies on changes in a security’s ...
  6. Accumulation/Distribution

    An indicator that tracks the relationship between volume and ...
comments powered by Disqus
Related Articles
  1. Simple Moving Averages Make Trends Stand ...
    Active Trading Fundamentals

    Simple Moving Averages Make Trends Stand ...

  2. Valuing Firms Using Present Value Of ...
    Fundamental Analysis

    Valuing Firms Using Present Value Of ...

  3. 10 Timeless Rules For Investors
    Active Trading Fundamentals

    10 Timeless Rules For Investors

  4. Preparing Your Finances From Natural ...
    Home & Auto

    Preparing Your Finances From Natural ...

  5. The Leap-Year Phenomenon
    Active Trading

    The Leap-Year Phenomenon

Trading Center