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Indicator Formula

Technical Details — McGinley Dynamic (MD)

Section titled “Technical Details — McGinley Dynamic (MD)”

Overview

Section titled “Overview”

The McGinley Dynamic (MD) is a self-adjusting moving average that modifies its smoothing factor based on the ratio of price to its own previous value. This creates an adaptive average that speeds up during fast moves and slows down during consolidation.

Mathematical Derivation

Step 1 — Calculate McGinley Dynamic

Section titled “Step 1 — Calculate McGinley Dynamic”

Purpose: Apply the self-adjusting formula.

$$MD[t] = MD[t-1] + \frac{Close[t] - MD[t-1]}{n \times \left(\frac{Close[t]}{MD[t-1]}\right)^4}$$

Where:

  • $$MD[t-1]$$ = Previous McGinley Dynamic value
  • $$Close[t]$$ = Current closing price
  • $$n$$ = Period
  • The 4th power creates non-linear speed adjustment

What This Measures: Self-adjusting moving average that tracks price with variable speed

Compact Formula Summary

$$MD[t] = MD[t-1] + \frac{Close[t] - MD[t-1]}{n \times \left(\frac{Close[t]}{MD[t-1]}\right)^4}$$

Default Parameter: Period (n) = 14

Complete Calculation Example

If MD[t-1] = 44.50, Close = 46.00, n = 14:

Ratio = (46/44.50)⁴ = 1.0337⁴ ≈ 1.142

MD = 44.50 + (46.00 - 44.50) / (14 × 1.142) = 44.50 + 1.50/15.99 = 44.59

Price moved up significantly but MD adjusted gradually.

Key Takeaways from the Example
  1. Self-Adjusting Speed: No other MA automatically adjusts its responsiveness to market conditions
  2. Reduced Whipsaws: Slows down in choppy markets, naturally filtering out noise
  3. 4th Power Non-Linearity: The (Close/MD)⁴ term creates dramatic speed changes for large price moves
  4. Single Parameter: Only needs period — the speed adjustment is automatic