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.

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