McGinley Dynamic Indicator is a LIE!! How to actually use McGinley Dynamic Trading Strategy

This is one of the most interesting indicators I have seen so far. Because watch this. This is a normal 50 period exponential moving average, you have most likely seen it multiple times before, but if I add a 50 period McGinley Dynamic moving average, still nothing interesting happens. One is just slower than the other. Usually, moving averages other than the simple and exponential moving averages, claim to be faster and reduce lag. But when put to the test, most of them are not even worth using. The only moving average that actually improved the win rate of a strategy in the long run, was the Weighted Moving Average we saw on the Trading Rush Channel. Removing lag from the moving average is not always a good idea, because most of the time it won’t magically make your strategy better. The McGinley Dynamic, on the other hand, is not like the other moving averages that claim to reduce lag. Instead, it claims to reduce lag by adjusting to the speed of the price movement.

It gets interesting. In a normal exponential moving average, it will calculate the average the same way in the range market, when the price is trending, and when the price makes sudden big moves. This can be a bad thing in some cases, especially when the price makes sudden big moves. But the McGinley Dynamic on the other hand will take this into account, and will adjust to ranging, trending, and sudden price movements.

But here’s the twist, if you plot the 50 period normal exponential moving average, and a 50 period McGinley Dynamic moving average on a timeframe like 30 mins, they will look different at first glance, but if you double the length of the normal exponential moving average, or in other words, if you set the length of the exponential moving average to two times the length of the McGinley Dynamic, you will notice something interesting.

The 100 period normal Exponential Moving Average, is almost exactly the same as the 50 period McGinley Dynamic moving average. Does this mean McGinley Dynamic is just a lie and showing almost exactly the same thing as a double-length normal Exponential Moving Average?

Well, yes, but actually no!

First, I applied a normal 100 period Exponential Moving Average, and a 50 period McGinley Dynamic moving average on a 30 mins Forex Chart, and they both looked almost exactly the same on TradingView. But remember what I said earlier, this indicator claims to adjust to the range, trending, and sudden market movements. So one of the first thoughts would be that 30 mins chart doesn’t have a lot of big sudden moves, maybe that’s why it is not that different. But when applied on a 1 min Forex chart, there is still not a lot of difference. And it’s not just the case with 50 and 100 period moving average. You can use any length McGinley Dynamic moving average, and an Exponential Moving Average with twice the length of the McGinley Dynamic will look exactly the same on the smaller Forex timeframes.

Even on a stock chart, where the prices open with huge gaps, the two moving averages looked almost exactly the same even on 1 min timeframe. However, this time, there was a small difference between the Exponential and McGinley Dynamic at some points.

You see, many traders call the McGinley Dynamic a better moving average, but on timeframes 4h and lower on the Forex Market, the McGinley Dynamic and a double-length Exponential Moving Average look almost exactly the same. On the other hand, in the stock market, on timeframes 30 mins and lower, there is almost no difference between a McGinley Dynamic and a double-length Exponential Moving Average. You will see occasional gaps between the two moving averages, but there are not significant to call the McGinley Dynamic special or better.

However, the biggest difference is easily noticeable, and where the McGinley Dynamic indicator shines, is on the Daily and higher timeframes. On the daily timeframe, the McGinley Dynamic does adjust to the ranging, trending, and sudden price movements.

So, if you want a moving average that adjusts to the speed of the price movement, use McGinley Dynamic, but only on the higher timeframes like Daily. Otherwise, you are better off with a double-length normal Exponential Moving Average on smaller timeframes.

We will take 100 Trades with the McGinley Dynamic moving average in the next video, to compare it with the other moving average strategies we have tested 100 times on the Trading Rush Channel so far. That’s all.