McGinley Dynamic Archives

Is McGinley Dynamic better than a Simple or Exponential Moving Average? Well, I took 100 trades with it to find that out. One of the popular moving average strategies is the 9 and 21-period crossover strategy, and after taking 100 trades with both Exponential and Simple Moving Averages on the Trading Rush Channel, we found out that they are profitable in the long run. But can the McGinley Dynamic moving average perform well or even better, with its unique way of adjusting to the different market conditions?

When taken 100 trades on almost the same market structure, where the Simple and Exponential Moving Average crossover strategies got a profitable win rate, the McGinley Dynamic started with a loss. The profit line then started to move in the sideways direction for a while instead of making a profit as the SMA strategy did.

Wait a minute. Didn’t I say in the McGinley Dynamic video that on timeframes like 30 mins, the McGinley Dynamic is just a half-length Exponential Moving Average.

Well, yes, and that’s exactly why you don’t see the McGinley Dynamic perform similar to the Exponential or SMA strategy.

And because we know McGinley Dynamic is just a half-length Exponential Moving Average on 30 mins, in this video, we are not only testing the McGinley Dynamic strategy but also the Exponential Moving Average Strategy with higher lengths.

In simple words, in the 9 and 21 period McGinley Dynamic moving average crossover strategy, the 9 period McGinley Dynamic, is showing almost the same values as an 18 period Exponential Moving Average, and a 21 period McGinley Dynamic is showing almost the same thing as a 42 period Exponential Moving Average. You can check out the previous video to learn more.

If you have been trading for a while, you can tell that a longer period moving average will react to price slower, than a faster period moving average. Because of this, McGinley Dynamic didn’t give entry signals where the Exponential Moving Average did and won. However, McGinley Dynamic also gave fewer false signals in a row in some cases, compared to the Exponential Moving Average Crossover Strategy.

But after 100 Trades, the McGinley Dynamic Trading Strategy got a 43 percent approximate win rate with a 1.5 to 1 reward risk ratio. The same strategy, but with Exponential Moving Average and Simple Moving Average, got 47 and 48 percent approximate win rates respectively.

So in the long run, the 9 and 21 period EMA strategy that many traders use, is still better than the McGinley Dynamic, or in other words, better than the 18 and 42 period Exponential Moving Average crossover trading strategy.

4.2+7.4+4+4+4.5

The McGinley Dynamic Crossover Strategy gets a TR Score of 24.1 out of 50, and ranks 27th from the top, below the Hull Moving Average with SMA strategy, and above the Fisher Transform Trading Strategy.

That’s all.

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

Get App

Patreon

YouTube

Tag: McGinley Dynamic

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.