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. Why is the McGinley Dynamic Indicator important for traders and analysts?

    Learn about an adaptation of moving average analysis called the McGinley dynamic indicator, a technical indicator that can ... Read Answer >>
  2. What are the best technical indicators to complement the McGinley Dynamic Indicator?

    Read about the strengths and weaknesses of the McGinley dynamic indicator, and find out which technical indicators are best ... Read Answer >>
  3. What is the McGinley Dynamic Indicator formula and how is it calculated?

    Discover the McGinley dynamic indicator, which is designed to resolve issues based on the subjective placement and static ... Read Answer >>
  4. What is a common strategy traders implement when using the McGinley Dynamic Indicator?

    Learn how to use the McGinley dynamic indicator to create a simple trading strategy that provides both trading signals and ... Read Answer >>
  5. How do I use McGinley Dynamic Indicator to create a forex trading strategy?

    Discover how to use the McGinley dynamic indicator to confirm or reject trading signals produced by other technical indicators ... Read Answer >>
  6. What are the best technical indicators to complement the Dynamic Momentum Index?

    Use other technical indicators to complement the use of the dynamic momentum index in analyzing a market and determining ... Read Answer >>
Related Articles
  1. Trading

    The Most Reliable Indicator You've Never Heard Of

    The McGinley Dynamic Indicator isn't very well known, but it is a great way to discover market trends.
  2. Managing Wealth

    The Real Cost Of A Speeding Ticket

    Speeding can come at a cost that goes well beyond one driver and one ticket.
  3. Trading

    Using Technical Indicators To Develop Trading Strategies

    Unfortunately, there is no perfect investment strategy that will guarantee success, but you can find the indicators and strategies that will work best for your position.
  4. Investing

    General Dynamics Trades Ex-Dividend Wednesday

    General Dynamics will send its dividend payment on Feb. 10 to shareholders of record as of Jan. 20.
  5. Trading

    Moving Averages

    Discover one of the most reliable indicators in technical analysis and learn how to incorporate it into your trading routine.
  6. Trading

    Use Moving Averages to Buy Stocks

    A moving average constantly updates a stock's average price, but it cannot predict a stock's performance.
RELATED TERMS
  1. McGinley Dynamic Indicator

    A little known technical indicator developed by John McGinley ...
  2. Market Dynamics

    The pricing signals that are created as a result of changing ...
  3. Moving Average Ribbon

    A technique used in technical analysis to identify changing trends. ...
  4. Simple Moving Average - SMA

    A simple, or arithmetic, moving average that is calculated by ...
  5. Dynamic Scoring

    Dynamic scoring is a measure of the impact that proposed tax ...
  6. Ease Of Movement

    A technical momentum indicator that is used to illustrate the ...
Hot Definitions
  1. Tender Offer

    An offer to purchase some or all of shareholders' shares in a corporation. The price offered is usually at a premium to the ...
  2. Ponzi Scheme

    A fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns ...
  3. Dow Jones Industrial Average - DJIA

    The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange ...
  4. Revolving Credit

    A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is ...
  5. Marginal Utility

    The additional satisfaction a consumer gains from consuming one more unit of a good or service. Marginal utility is an important ...
  6. Contango

    A situation where the futures price of a commodity is above the expected future spot price. Contango refers to a situation ...
Trading Center