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McGinley Dynamic Indicator

Reviewed by Bhavana | Updated on Jan 29, 2021


Definition of the McGinley Dynamic Indicator

The McGinley Dynamic indicator is a kind of moving average which was designed in order to track the market in a better way in comparison to the current moving average indicators. It is a technical indicator which enhances the movement of average lines by adjusting for shifts within the market speed. The inventor of the eponymous indicator is John R. McGinley, a market technician.

## Understanding the McGinley Dynamic Indicator in Detail

The McGinley Dynamic indicator solves a problem inherent by moving averages which use fixed time durations. The fundamental issue is that the market, being the big discounting system that it is, responds to events at a pace that the moving average would not be able to cope with.

This problem is called the lag, and there is no form of moving average, whether it is a simple, exponential, or weighted moving average, that is not affected by this. Understandably, this would bring into doubt the durability of the moving average.

The McGinley Dynamic indicator takes into consideration market speed shifts (hence, 'dynamic') to display a smoother, more flexible, moving average line.

The market speed is not consistent; it often accelerates and slows down. Traditional moving averages, such as the simple moving average or the exponential moving average, do not represent this market phenomenon.

The McGinley Dynamic indicator solves this problem by integrating an automated smoothing element into its formula to respond to market fluctuations. This speeds or slows down the business trend or range predictor.

## Importance of the McGinley Dynamic Indicator

The indicator builds on traditional moving averages by eliminating price separations and erratic whipsaws, so that price behaviour is more accurately represented. The formula allows the acceleration or deceleration of the McGinley Dynamic indicator to be focused solely on the price movement of the defence.

While traders could use the line to make purchases or selling decisions, McGinley's original aim for the indicator was to minimise the distance between the indicator and the market. The argument is that a faster moving average monitoring will be more reliable in producing trading signals.

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