McGinley Dynamic is a trend following indicator.
Being a trend following indicator, McGinley Dynamic indicator was created by John McGinley with the main aim of solving the inherent problem of all moving average since it is a smooth mechanism indicator for prices .Therefore it is able to follow the market closely than any other moving average indicator.Just like in all moving average indicator, McGinley Dynamic indicator is also used to indicate the direction of the market thus enabling the traders to know whether the market has gained support or resistance.
According to John McGinley, the values of McGinley Dynamic is therefore calculated using the following formula;
MD is the curent McGinley Dynamic value;
MD-1 is the previous McGinley Dynamic Value;
price is the price of the asset/security.
While n is the smoothing moving average.
Since McGinley Dynamic indicator is a trend following indicator and is based on support and resistance , it therefore follows that when the price is in an upward trend the McGinley Dynamic indicator will also be moving upwards.On the other hand, if the price is in a downward trend,the McGinley Dynamic indicator will also be moving downwards.Based on support and resistance, When the price rises above the McGinley Dynamic indicator when the movement is in an upward trend, the market and the McGinley Dynamic will reverse and start moving downwards thus signaling the trader to close any buy position and enter a sell position.On the other hand, When the price falls below the McGinley Dynamic indicator when the movement is in a downward trend, the market and the McGinley indicator will reverse and start moving upwards thus signaling the trader to close any sell position and open a buy position. This is indicated as from the candle sticks chart below;
From the candle sticks chart above, there are 3 points, Point A,B and C. Point A and B represent the support and resistance point while point C which is a blue curve represent the McGinley Dynamic indicator. At point A, the market and the McGinley were initially in a downward movement.The price then falls below the McGinley Dynamic thus resulting to an upward reversal direction for both the market and the McGinley Dynamic as indicated by the upward arrow.This will singal the trader to close any sell position and open a buy position.On the other hand, at point B, the market and the McGinley were initially in an upward trend movement.The price then rises above the McGinley Dnamic thus resulting to a downward reversal direction for both the maket and the McGinley Dynamic as indicated by the downward arrow.This will signal the trader to close any buy position and open a sell position.
Recommendation:If you are a day trader just use 1 min,5 min, 15 min and 30 min timeframe while if you are a swing trader just use 1 hour and above timeframe if you want McGinley Dynamic indicator to work well for you
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