"When Galileo went to church at the Cathedral of Pisa in 1581, he saw a chandelier swinging back and forth. The chandelier moved in many different arcs and amplitudes because the air currents were changing. So, Galileo got the idea for the pendulum, which he later used to measure time in his experiments."
The pendulum formula is based on the idea that greed and fear are common herd instincts in any investment area, that most extremes tend to return to a natural balance point or gravity centre, and that trends and cycles of these tendencies can be found and measured.
It is very important to find out all of the market's trends, cycles, equilibrium points, and basic values. The results should be in line with how things naturally grow, get better, and get worse.
The main goal of an investor is to find extreme values, either high or low, that will lead to a return to the current "gravity centre" or balance point and a profitable trade. To do this, all decision lines, formulas, and ideas must be fully integrated and calibrated for accuracy, precision, and profit.
Fundamental Formula:
Due to our huge trade deficits, unsustainable consumer debt, housing and stock market bubbles, etc., many people invest in gold, silver, and resource stocks. At http://goldmoney.com/en/commentary/2003-09-26.html, John Embrey wrote about 15 important reasons to own gold in 2003. These reasons are still true today, and they serve as a kind of insurance against possible financial disasters.
It's not easy to figure out how to value gold, silver, and resource stocks. Some of them make things. Some people may have a clear resource, while others may be explorers or people who make new prospects. In general, there are 10 things that must be thought about, evaluated, and answered positively in the gold and silver area.
- Number of holes drilled
- Infrastructure
- The leadership, their vision, their experience, and their partners
- Where the property is
- The number of ounces that could be mined was measured and shown.
and extrapolated resources.
- Open pit vs. underground
- Finances, net present value & potential share dilution
- Political considerations
- Problems with metallurgy
Kenneth Gerbino has written a more in-depth look at these rules and other issues at http://www.321gold.com/editorials/gerbino/gerbino060804.html.
Technical Formula:
Aside from the basic requirements for owning gold and silver stocks, there are trends, cycles, and patterns that investors can track and use to make money from the way the pendulum swings into and out of this area.
Studies have shown that the movement of the whole market is directly responsible for about 60% of the change in the price of a typical stock. So, being on the right side of a market trend is just good business sense. So, it's best to look at the overall trend of an index before looking at individual gold, silver, and resource issues.
Also, if we want to invest in any market, it goes without saying that we need to lower the risk, increase the odds, and take a more structured and creative approach. My market direction indicators and advanced market behaviour formulas are made to help me do this, and I just call it "Pendulum." It's kind of like a personal toolbox that helps me make technical decisions.
Trend is a basic idea, and it is important to use or create an indicator that shows a trend. I recommend the Moving Average Convergence Divergence (MACD) indicator, which can be found in most popular programmes. In my work, I use TSL, which is my own modified version of the MACD (Trend Signal Line). Like the MACD, it helps find trends, but it doesn't move around as much. It is important to come up with your own indicators so that you don't get the same results as everyone else.
Let's look at a specific case. One of the most interesting ideas is to show both a trend and a cycle at the same time. So, it is possible to see both the long-term main trend and the short-term cycles within it. The red TSL is the trend signal line mentioned above, and the SRA is my own indicator of speed and acceleration. Here's an example from the low point of the XAU index in May 2005. For a description of a chart, please go to www.marketpendulum.com/pendulumconcepts.html.
As you can see, it did pretty well and let us get in on a profitable trend early. So I would tell everyone to make their own formulas and indicators.
Today, my Pendulum tool box measures the size, force, and energy of market swings, as well as the movement of emotions across an equilibrium point, also called a gravity centre. The idea of gravity centre is one of the most important parts of Pendulum, and it can be found all over nature. Gravity is the natural force that makes both people and things move toward their centre of gravity.
Results:
I use the above ideas and criteria to create two model portfolios: one for gold and silver and the other for resource stocks. The gold/silver portfolio has gone up by an average of 265% since 2002, and the resource portfolio has gone up by 74% since it started in 2004. This is a very good result for me.
Conclusion:
We've talked about how to choose stocks in the gold/silver and resource investment areas based on key fundamental data and original technical trend criteria. It's not easy and takes time and work, but for a serious investor, it can be the golden pendulum formula for possible success.
