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Developed by John McGinley in 1990 and published in the Market Technicians Association’s Journal Of Technical Analysis 1997, the McGinley Dynamic attempts to overcome the problems of more traditional simple and exponential moving averages by automatically adjusting itself relative to speed of the market. This allows the McGinley Dynamic to follow prices move closely in fast and slow moving markets while better avoiding price separation and whipsaws. The McGinley Dynamic is calculated by the formula:
Dynamic = D1 + (Price - D1) / (N * (Price/D1)^4)
Where:
D1 = previous value of Dynamic
N = smoothing factor (periods)
Interpretation
McGinley believes that moving averages (and his Dynamic) should be used as smoothing mechanisms rather than as trading systems or signal generators. However, the McGinley Dynamic can also be used in place of traditional moving averages. Please refer to the "Moving Average" indicator for additional details.
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