By Trader Garrett
The Golden Pendulum Formula
“In 1581, Galileo, while attending services at the Cathedral ofPisa, observed a chandelier swinging back and forth. Energizedby shifting air currents, the chandelier moved in a variety ofarcs and amplitudes. Thus was born the concept of the pendulumwhich Galileo used as a time measurement device in his laterexperiments”
The pendulum formula is a belief that, in any investment area,the herd instincts of greed and fear are prevalent, thatvirtually all extremes return to a natural equilibrium point orgravity center, and trends and cycles of these tendencies can beidentified and measured.
Uncovering the full spectrum of trends, cycles, equilibriumpoints and fundamental values of the market is vital. Theresults should be in harmony with natural growth, maturity andregression.
An investor’s primary mission is to determine extremes ofvalues, either long or short, that will result in a return tothe current "gravity center" or an equilibrium point and thus aprofitable trade. To this end, all decision lines, formulas andconcepts must be fully integrated and calibrated to result inaccuracy, precision and profit.
Fundamental Formula: Many invest in gold and silver and resourcestocks due to our huge trade deficits, unsustainable consumerdebt, housing and stock market bubbles, etc. In 2003, JohnEmbrey outlined 15 fundamental reasons to own gold athttp://goldmoney.com/en/commentary/2003-09-26.html. Thosereasons are still valid today and provide a type of insurancepolicy against potential financial disasters.
Evaluating gold, silver and resource stocks is not easy. Someare producers. Others may have a defined resource while othersare explorers or prospect generators. In general, there are 10areas in the gold and silver area in particular, that must beconsidered, evaluated and positively answered.
1. Management, their vision, experience and partners 2. Locationof property 3. Infrastructure 4. Number of holes drilled 5.Number of potentially mineable ounces from measured, indicatedand inferred resources. 6. Open pit vs. underground 7.Metallurgy issues 8. Political considerations 9. Finances, netpresent value & potential share dilution 10. Feasibility studyplanned or in progress
A more detailed analysis of these guidelines and other issues byKenneth Gerbino can be found athttp://www.321gold.com/editorials/gerbino/gerbino060804.html
Technical Formula: Outside of the fundamental criteria forowning gold and silver stocks, there are measurable trends,cycles and behavior that allow investors to participate andprofit from the pendulum swings into and out of this area.
Studies have shown that 60% of a typical stock price change canbe directly attributed to the movement of the overall market.Therefore, it just makes common sense to be on the right side ofa market trend. To that end, it is wise to first focus on anindex trend before considering individual gold, silver andresource issues.
Also, if we are planning to invest in any market arena, then itgoes without saying that we need to reduce the risk, improve theprobabilities and employ a more disciplined and originalapproach. My market direction indicators and advanced marketbehavior formulas are designed to assist me for just such apurpose, and I simply call it Pendulum. It is a personal toolbox, as it were, to guide me in technical decisions.
The concept of trend is basic and using or developing anindicator that demonstrates a trend is essential. I recommendthe MACD (moving average convergence divergence) found in mostpopular programs. In my work, I use my own modified form of theMACD which I called TSL (Trend Signal Line). Like the MACD itassists in determining trends but without as many whipsaws. Forobvious reasons, it is very important to develop one’s ownindicators so as to avoid getting the same results as everyoneelse.
Let’s look at an example. One of the more interesting conceptsis to display a trend and cycle in one integrated view. One cantherefore see the longer primary trend and the short term cyclewithin that trend. The red TSL is the trend signal line notedabove and the SRA, my own speed and acceleration cycleindicator. Here is an example from the May 2005 low in the XAUindex. Please see www.marketpendulum.com/pendulumconcepts.html.
As you can see, it did quite well and allowed an early entranceinto a profitable trend. So I would encourage all to developtheir own indicators and formulas.
Today, my Pendulum tool box measures the swings in the market,their amplitude, force and energy while recording the motion ofemotion across an equilibrium point or gravity center. Theconcept of gravity center is a central feature of Pendulum andis found throughout nature....that force of nature that compelsboth human behavior and physical objects to find theirequilibrium point.
Results: Using the concepts and criteria above, I employ twomodel portfolios, one gold/silver and the other resource stocks.The gold/silver portfolio is up an average 90% since 2002 andthe resource portfolio 31% since its 2004 inception, a verysatisfactory result for my purposes.
Conclusion: We have discussed using key fundamental data andoriginal technical trend criteria as the basis for stockselections in the gold/silver and resource investment areas. Itis not easy, takes time and effort, but for the seriousinvestor, it can be the golden pendulum formula for potentialsuccess.
September 11, 2005 Contact: Trader Garrett Email:mpendulum@airbits.com Website: www.MarketPendulum.com
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