This Pendulum technique is based on the assumption that in any investment arena the herd instincts of greed and fear will always be prevailing somewhere in the stock market irregardless of the vehicle of investment that is employed.
These emotions often cause stock prices to either fall or rise depending which emotion is prevalent at the time. Eventually these extremes of stock prices will eventually return to a natural equilibrium point or gravity centre. Thus this action of the pendulum causes trends and cycles to occur and these occurences can be therefore readily identified and measured. These trends can then be used to our profitable advantage when trading.
Acquiring the ability to recognise these trends, cycles and central balance points are vital to a traders success and future profits. We shall now take a closer look at the Pendulum System. I often use this system successfully for gold/silver mining stocks. So I shall use them as an example.
Numerous traders like to invest in gold and silver and resource stocks. But researching gold, silver and resource stocks is not always that easy. The reason for this is that while some are actual producers. Others may have a confirmed resource but have not yet started mining while others are either still explorers or prospect generators.
In the main, there are 10 areas in the gold and silver area particularly, that must be regarded, assessed and properly researched before you can safely invest in this area. In reality these 10 points can also apply to any mining stock.
1. Firstly have a look at the Management of the company. What is their experience and who are their partners. If they are well known in the mining sector then this can be taken as a good omen.
2. Where is the location of the company. Is it out in the back of beyond,miles away from anywhere? The further away they are, the longer it takes to deliver or export vital resources.
3. What Infrastructure do they have in place.
4. Has any explloration holes been drilled? And if so how many.
5. What are the results of the mining assay? Are there a number of potentially mineable sources from appraised, indicated and deduced resources.
6. A re the mining operations going to be Open cut or underground? Open cut is usually a lot cheaper.
7. What are the Metallurgy issues involved?
8. Are there any Political considerations or native title issues to be considerd which could be detrimental to the starting up of the company.
9. Is the sufficent Finances in place to guarantee future developments? What is the cash burn of the company? Will they have to raise more cash to keep going? If they issue more stock will it affect the net present value and possibly cause a potential share dilution to occur.
10. Is there a future Feasibility study projected or is it already in progress?
Technical Formula:
Once you have researched the fundamental criteria for locating a prospective gold or silver stocks. You can then begin to look at its trends, cycles and the stock’s general behavior. This will then allow you to enter and profit from the pendulum swings that will happen from time to time..
As we have said before most of any typical stock price changes that occur either up or down in the market place can be directly attributed to the sentiment or mood of the market at that particular time.
Before we begin to invest in any particular stock, then it goes without saying that we will need to reduce the potential risk involved. Improve the probabilities of our trading success and utilise a disciplined approach to our trading.
The idea of trading trends is a basic one and the use of an Technical Indicator that demonstrates a trend is essential. The one that I recommend is the MACD (moving average convergence divergence) This will assist you in ascertaining trends but without as many whipsaws. But in reality it is up to you to find which technical indicators serve you best and then to apply them to locating the trends in the stock prices. Used properly technical indicators will give you that trading edge in finding profitable trends.
In closing we have discussed how to use key fundamental data as the basis for stock selections in the gold/silver and the resource investment areas and a quick look at how to find trends by using technical indicator.
Research is not always easy, for it takes time and effort, but for the serious trader the pendulum system might be the ideal tool to help you for potential success and profit in your trading.
Chris Strudwick is a successful share trader on the Australian Stock Market Visit his weblogs at both http://www.asxnewbie.com AND http://www.aussie-retiree.com/ for more free articles and useful information about the stock market.
