The McGinley dynamic indicator was developed by J. McGinley in the year 1990 and is used as a moving average. Having studied technical analysis strategies and trading techniques for close to 40 years, McGinley observed that traditional moving average indicators can often separate from a price in volatile markets. McGinley developed the indicator into a responsive tool that would provide a more accurate picture of price movement than a traditional moving average. The indicator can be used to help filter trading signals as part of an overall forex trading strategy. It can also be applied to other markets including stocks, commodities, indices, cryptocurrencies and more.
What is the McGinley Dynamic Indicator?
Volume and volatility components with the addition of the McGinley Dynamic Indicator to help mitigate the negative effects of accelerating or slowing markets. His formula is specifically aimed at capturing the effect of changes in market characteristics on the trend line.
John McGinley was not going to use his tool as an indicator. He believed that moving averages are error-prone and unable to generate reliable trading signals. His formula was to eliminate the inability of the moving average indicator to adapt to the pace of trade, but only as a trend-oriented tool.
However, you cannot completely replace this indicator in place of the moving average. Moving averages, especially simple moving averages (SMAs), are often used by forex traders to help identify discrepancies and crossovers to help place exit and entry positions. The dynamic McGinley indicator refers to reducing the lag and the accusation of the price action of the currency pair, deliberately ignoring the discrepancies in an attempt to eliminate whipsaws and false signals.
General characteristics of the McGinley Dynamic Indicator
- Currency pairs: All, including major and minor forex currency pairs.
- Trading platform: This is a custom indicator based on the Mcginley Dynamic Indicator developed for the Metatrader 4 platform.
- Indicator type: It is a trend indicator based on moving averages.
- Recommended time frames: 1 minute, 5 minutes, 15 minutes, 30 minutes, 1 hour, 4 hours, one day, one week, one month.
- Indicator customization options: Variables (# of periods, smoothing) colors, width, and style.
How to use McGinley Dynamic Indicator?
Traders can combine the McGinley Dynamic Indicator with other indicators designed to generate exit and entry signals, such as moving average convergence divergence (MACD) or relative strength index (RSI). Whenever there is an opportunity for profit or a possible change in trend, rely on the McGinley Dynamic Indicator to confirm or reject it.
Forex traders can use the McGinley dynamic indicator in the same way as using the moving average indicator – to identify trends and confirm the signals of other technical tools. The McGinley dynamic indicator is designed to remove the subjective application and the static flaws of simple and exponential moving averages (EMAs).
The Mcginley Dynamic Forex indicator for the Metatrader 4 platform is an indicator based on moving averages that have a smoothing factor in reducing false signals.
Their trading signals are very simple:
- If price action is on the Mcginley indicator: we can look for possible buy signals.
- If price action is below the Mcginley indicator: we can look for possible sell signals.
The indicator settings (period, smoothing factor) can be changed directly from the indicator settings tab.
McGinley Dynamic Indicator trading strategy
We are presenting a trading strategy based on McGinley Dynamic Indicator and the confirmation signal is taken from the RSI. Traders need to be cautious. The indicator line moves faster when markets fall than when they rise. Knowing this allows traders to sell quickly when a security enters a downward trend and hold a position for as long as possible in a rising market. The indicator is more difficult to use when the price action on a security is sideways, as there is no clear trend.
McGinley Dynamic Indicator buy strategy
- The price should cross above the McGinley Dynamic Indicator (period 20).
- The RSI line should be above the 50.0 level.
- We could place the stop-loss around the swing low.
- We could exit the trade in profit when the price moves 50 pips above the entry price.
McGinley Dynamic Indicator sell strategy
- The price should cross below the McGinley Dynamic Indicator (period 20).
- The RSI line should be below the 50.0 level.
- We could place the stop-loss around the swing high.
- We could place exit the trade in profit when the price moves 50 pips below the entry price.
McGinley Dynamic Indicator conclusion
Sometimes called “the most reliable indicator you’ve never heard of,” the McGinley Dynamic indicator is a form of Moving Average (MA) indicator used to track markets in an improved fashion, by accounting for changes in market speed.
The McGinley Dynamic indicator was designed as a smoothing mechanism. It should not be the only technical indicator a trader refers to when making investment decisions. While it reduces the issue of lag, it does not remove it completely.
The McGinley Dynamic indicator can be used on your trading platform charts to help filter potential trading signals as part of an overall trading strategy.
A McGinley Dynamic indicator strategy should also incorporate other types of technical analysis tools, such as the RSI and moving average convergence divergence (MACD), to confirm the trend the indicator is showing on the price chart.
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