McGinley Dynamic

TL;DR. A moving average whose step size depends on how far price is from it. When price is above the line it moves cautiously, when price is below it moves quickly, so it hugs price in a fall and stays out of the way of a rally's noise. John McGinley designed it as a tracking line rather than a signal.

#What it measures

• A trend line that adjusts its own speed. Each bar the line moves (x − MD) / (c × n × (x / MD)⁴) toward price: the fourth power of price over the line sets how big the step is.
• Asymmetry between up and down. With price 2% above the line the step shrinks by about 8%; with price 2% below, it grows by about 8%. The gap compounds in a fast move, so the line keeps up with a drop sooner than with a rise.
• The idea behind adaptive averages. Like KAMA, it varies its speed; KAMA reads how efficient the move was, the McGinley line reads how far price has run from it.

#Formula

#Inputs in AlgoLift

#Recommended settings

• 10 to 20, constant 1: A trend line close to an EMA of about twice the period, with fewer whipsaws in a rally.
• Constant 0.6: McGinley's faster setting, for a line that stays closer to price.
• 50 to 100: A slow regime line that still drops quickly in a sell-off.

#Outputs in AlgoLift

#How to read it

• Price above a rising line: an up state. The line climbs steadily rather than chasing each spike.
• Price below a falling line: a down state, and the line follows the drop closely.
• A wide gap above the line: price has run far ahead; the line is deliberately slow to follow, so the gap measures how stretched the rally is.
• Price falling through the line: the line speeds up at once, so the cross tends to hold rather than flip back.

#Best in, worst in

Best in markets that fall faster than they rise, such as equity index futures, where a line that keeps up with a sell-off but ignores rally noise matches the tape.

Worst in markets that spike upward (short squeezes, news gaps up): the line lags far behind and a cross back below comes late.

#Three setups

#1. Price over the McGinley line

Long while price is above the McGinley Dynamic(14), flat or short below it, through a Crossover into the Entry. The line's slowness in a rally keeps the long through pullbacks that would cross an EMA.

#2. McGinley as a trend filter

Compare price with a McGinley Dynamic(50) through a Comparison node and AND it into another entry: longs only above it.

#3. Fast exit on a drop

Hold a long while price stays above a McGinley Dynamic(20) with constant 0.6; exit through Set Exit Condition when price falls below it. In a drop the line climbs toward price quickly, so the exit comes early.

#Common mistakes

• Expecting symmetric behaviour for shorts. A short held while price stays below the line exits late in a sharp rally, because the line is slow when price is above it.
• Comparing the first bars with another platform. The line starts at the first bar's value, so platforms starting from different data disagree for a while and then meet.
• Tuning the period and the constant together. Both set the speed. Fix the constant and sweep the period (overfitting in trading).