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 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 >>
  3. What are the most common periods used in creating Moving Average (MA) lines?

    Learn the most commonly selected periods used by traders and market analysts in creating moving averages to overlay as technical ... Read Answer >>
  4. What are the main advantages of using Moving Averages (MA)?

    See why moving averages have proven to be advantageous for traders and analysts and useful when applied to price charts and ... Read Answer >>
  5. How are moving averages used in trading?

    Moving averages are very popular tools used by technical traders to measure momentum. The main purpose of these averages ... Read Answer >>
  6. Why is the Moving Average (MA) important for traders and analysts?

    See why the statistical concept of moving averages plays a central role for traders and chartists who rely on technical analysis ... Read Answer >>
Related Articles
  1. Trading

    How To Use A Moving Average To Buy Stocks

    The Moving Average indicator is one of the most useful tools for trading and analyzing financial markets.
  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. Investing

    Using Moving Averages to Buy ETFs

    Learn how to use moving averages to enter and exit trades in ETFs, and understand some popular technical setups using moving averages.
  4. Trading

    The 7 Pitfalls Of Moving Averages

    While moving averages can be a valuable tool, they are not without risk. Discover the pitalls and how to avoid them.
  5. Trading

    Do Adaptive Moving Averages Lead To Better Results?

    These complex indicators can help traders interpret trend changes, but are they too good to be true?
  6. Trading

    Moving Averages

    Discover one of the most reliable indicators in technical analysis and learn how to incorporate it into your trading routine.
RELATED TERMS
  1. Guppy Multiple Moving Average - GMMA

    An indicator used in technical analysis to identify changing ...
  2. Displaced Moving Average

    A moving average that has been adjusted forward or back in time ...
  3. Exponential Moving Average - EMA

    A type of moving average that is similar to a simple moving average, ...
  4. Linearly Weighted Moving Average

    A type of moving average that assigns a higher weighting to recent ...
  5. Speed

    The rate at which the gamma of an option or warrant will change ...
  6. Ease Of Movement

    A technical momentum indicator that is used to illustrate the ...
Hot Definitions
  1. Pro Forma

    A Latin term meaning "for the sake of form". In the investing world, it describes a method of calculating financial results ...
  2. Trumpcare

    The American Health Care Act, also known as Trumpcare and Ryancare, is the Republican proposal to replace Obamacare.
  3. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
  4. Portable Alpha

    A strategy in which portfolio managers separate alpha from beta by investing in securities that differ from the market index ...
  5. Run Rate

    1. How the financial performance of a company would look if you were to extrapolate current results out over a certain period ...
  6. Hard Fork

    A hard fork (or sometimes hardfork) is a radical change to the protocol that makes previously invalid blocks/transactions ...
Trading Center