Docstoc
EXCLUSIVE OFFER FOR DOCSTOC USERS
Try the all-new QuickBooks Online for FREE.  No credit card required.

The Golden Pendulum Formula

Document Sample
The Golden Pendulum Formula Powered By Docstoc
					by: Trader Garrett

In 1581, Galileo, while attending services at the Cathedral of Pisa, observed a chandelier
swinging back and forth. Energized by shifting air currents, the chandelier moved in a variety of
arcs and amplitudes. Thus was born the concept of the pendulum which Galileo used as a time
measurement device in his later experiments

The pendulum formula is a belief that, in any investment area, the herd instincts of greed and
fear are prevalent, that virtually all extremes return to a natural equilibrium point or gravity
center, and trends and cycles of these tendencies can be identified and measured.

Uncovering the full spectrum of trends, cycles, equilibrium points and fundamental values of the
market is vital. The results should be in harmony with natural growth, maturity and regression.

An investors primary mission is to determine extremes of values, either long or short, that will
result in a return to the current "gravity center" or an equilibrium point and thus a profitable
trade. To this end, all decision lines, formulas and concepts must be fully integrated and
calibrated to result in accuracy, precision and profit.

Fundamental Formula:

Many invest in gold and silver and resource stocks due to our huge trade deficits, unsustainable
consumer debt, housing and stock market bubbles, etc. In 2003, John Embrey outlined 15
fundamental reasons to own gold at http://goldmoney.com/en/commentary/2003-09-26.html.
Those reasons are still valid today and provide a type of insurance policy against potential
financial disasters.

Evaluating gold, silver and resource stocks is not easy. Some are producers. Others may have a
defined resource while others are explorers or prospect generators. In general, there are 10 areas
in the gold and silver area in particular, that must be considered, evaluated and positively
answered.

      Management, their vision, experience and partners
      Location of property
      Infrastructure
      Number of holes drilled
      Number of potentially mineable ounces from measured, indicated and inferred resources.
      Open pit vs. underground
      Metallurgy issues
      Political considerations
      Finances, net present value & potential share dilution
      Feasibility study planned or in progress

A more detailed analysis of these guidelines and other issues by Kenneth Gerbino can be found
at http://www.321gold.com/editorials/gerbino/gerbino060804.html
Technical Formula:

Outside of the fundamental criteria for owning gold and silver stocks, there are measurable
trends, cycles and behavior that allow investors to participate and profit from the pendulum
swings into and out of this area.

Studies have shown that 60% of a typical stock price change can be directly attributed to the
movement of the overall market. Therefore, it just makes common sense to be on the right side
of a market trend. To that end, it is wise to first focus on an index trend before considering
individual gold, silver and resource issues.

Also, if we are planning to invest in any market arena, then it goes without saying that we need
to reduce the risk, improve the probabilities and employ a more disciplined and original
approach. My market direction indicators and advanced market behavior formulas are designed
to assist me for just such a purpose, and I simply call it Pendulum. It is a personal tool box, as it
were, to guide me in technical decisions.

The concept of trend is basic and using or developing an indicator that demonstrates a trend is
essential. I recommend the MACD (moving average convergence divergence) found in most
popular programs. In my work, I use my own modified form of the MACD which I called TSL
(Trend Signal Line). Like the MACD it assists in determining trends but without as many
whipsaws. For obvious reasons, it is very important to develop ones own indicators so as to
avoid getting the same results as everyone else.

Lets look at an example. One of the more interesting concepts is to display a trend and cycle in
one integrated view. One can therefore see the longer primary trend and the short term cycle
within that trend. The red TSL is the trend signal line noted above and the SRA, my own speed
and acceleration cycle indicator. Here is an example from the May 2005 low in the XAU index.
Please see. www.marketpendulum.com/pendulumconcepts.html for a chart description.

As you can see, it did quite well and allowed an early entrance into a profitable trend. So I would
encourage all to develop their own indicators and formulas.

Today, my Pendulum tool box measures the swings in the market, their amplitude, force and
energy while recording the motion of emotion across an equilibrium point or gravity center. The
concept of gravity center is a central feature of Pendulum and is found throughout nature....that
force of nature that compels both human behavior and physical objects to find their equilibrium
point.

Results:

Using the concepts and criteria above, I employ two model portfolios, one gold/silver and the
other resource stocks. The gold/silver portfolio is up an average 90% since 2002 and the resource
portfolio 31% since its 2004 inception, a very satisfactory result for my purposes.

Conclusion:
We have discussed using key fundamental data and original technical trend criteria as the basis
for stock selections in the gold/silver and resource investment areas. It is not easy, takes time and
effort, but for the serious investor, it can be the golden pendulum formula for potential success.

This article was posted on September 26, 2005

				
DOCUMENT INFO