Saturday, November 30, 2013

McGinley Dynamic

My latest experiment was on the Mcginley dynamic. The claim that it is one of the most reliable indicators attracted my attention.  The McGinley Dynamic technical  indicator aims to overcome the lag of the traditional simple and exponential moving averages, the indicator automatically adjusting itself relative to the speed of the market. The McGinley Dynamic looks like a moving average line yet it is supposed to be a smoothing mechanism for prices that turns out to track far better than any moving average. It is also supposed to minimizes price separation, price whipsaws and hugs prices much more closely. And it does this automatically as there is a factor of the formula. Because of the calculation, the Dynamic Line speeds up in down markets as it follows prices yet moves more slowly in up markets. One wants to be quick to sell in a down market, yet ride an up market as long as possible.
The Formula
MD = MD-1 + (Price – MD-1) / (N * (Price / MD-1 ) 4)
MD – McGinley Dynamic
N   -  Dynamic Tracking factor
Here the difference between the Dynamic and the price is divided by N times the ratio of the two to the 4th power. The numerator difference gives us a sign, up or down, and the denominator keeps us percentage-wise within bounds defined by N. The 4th power gives the calculation an adjustment factor which increases more sharply the greater the difference between the Dynamic and the current data. 
The McGinley Dynamic (MD) is supposed to avoid whipsaws because the Dynamic Line automatically follows prices in any market fast or slow, it is supposed be like a steering mechanism that stays aligned to prices when markets speed up or slows down.

Personally I do not find this indicator very useful. Maybe it is better as a tool to gauge the market instead of a regular indicator. Of course the MD performs better compared to the regular EMS in terms of closely tracking the stock and in terms of whipsaws. I am enclosing a chart with the MD (Yellow line) and to compare I have plotted a 20 EMA (Red Line).


For those interested to experiment I am enclosing the afl. Please let me know if you find any interesting aspect of the MD.

9 comments:

  1. boss unable to download,by how i may download it

    ReplyDelete
  2. Hi Karthik.

    I have written a small e-book on day trading
    Kindly let me know your feedback
    http://niftynirvana.blogspot.in/2013/12/download-e-book.html

    SMART Trader

    ReplyDelete
    Replies
    1. Hi ST. Great Book. I have shared it in my Facebook group "Marar Foundation" which was created to help investors from Bangladesh. I have been getting lot of praise for the book. Greta going
      Regards

      Delete
  3. Dear sir,

    Is possible to create 25 points range bar afl, New bar if prices breakout of 25 points range.

    ReplyDelete
  4. Hi Karthik

    So happy to get an appreciation from you
    You are so special in my trading journey. You are the first one to hold my hand when I took my first baby step. You may not be remembering , but I do
    http://www.traderji.com/introductions/4792-charting-tool.html#post27580

    Regards
    Rajesh

    ReplyDelete
  5. Oh..great .. you still remember... Good old days they were.... Thanks

    ReplyDelete
  6. Really great post. I have learned a lot of thing about my trading business. Thanks.

    ninjatrader indicators

    ReplyDelete
  7. Sir,
    Thanks for fantastic AFL, color changing Candles & Mcginley line makes life very easy.

    ReplyDelete
  8. Dear...Mc Ginley Dynamic is the most reliable indicator according to me. Use Mc Ginley Dynamic with 14 period & Bollinger Band (50 period, 2) for profit booking. I am using it since a year & the results are awesome.

    You don't need any other indicator accept these two for intra-day or positional. Only be careful not to enter in range bound market when Mc Ginley is horizontal.

    Only trade when it is in upward or downward direction & the candle closes above MD (Long) or closes below MD (Short)

    ReplyDelete