McGinley Dynamic: a moving average that adjusts to speed

What it measures

The McGinley Dynamic adjusts its smoothing by the ratio between price and the line itself, raised to a power. When price pulls away quickly the divisor shrinks and the line catches up faster.

The design goal was an average that does not get whipsawed, and it largely achieves it: price crosses a McGinley line far less often than it crosses an equivalent EMA.

It is best understood as an average that refuses to be left behind rather than one that tries to lead.

How it is calculated

These are the steps Basis performs, verified against the published definition.

1. 1

   Start from the previous McGinley value.

2. 2

   Compute the ratio of the current price to that value, and raise it to the fourth power.

3. 3

   Divide the period by that result to get an adaptive divisor.

4. 4

   Add the difference between price and the previous value, divided by the adaptive divisor.

Settings

A period around ten to fourteen behaves like a much longer conventional average because of the adaptation. There is only one parameter, and raising it slows the baseline without making the line any more likely to be crossed.

How to read it

• It tracks trends closely without the lag of a long average and without the noise of a short one.
• Because crossings are rare, a crossing is worth more attention than it would be on a conventional average.
• It works well as a baseline in a system where a second, faster signal supplies the timing.
• It is best used as a baseline rather than a signal generator. The line rarely gets crossed, which makes it a reliable answer to "which side of the trend am I on" and a poor answer to "should I act now" — pair it with something faster for the timing.

Where it misleads

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