10/31/2015 HowRogerBabsonsapplicationsofNewtonianPhysicsareusedbyinvestorstoday.

ByRonJaenischMacroMatters

HOW ROGER BABSONS APPLICATIONS OF NEWTONIAN

PHYSICS ARE USED BY INVESTORS TODAY. BY RON
JAENISCH
PostedbyEditorPostedonjun5th,2012

RogerBabsonwasattheNewYorkstockexchangeonMarch14,1907,attherequestofafriend.Themarkethadstartedadropfrom
ahighof111onMarch6,1907onthewaytoalowpointof60.MuchofthedropoccurredonMarch14.OnthatdayIactuallysaw
menshairturngray.Rogerwroteinhisautobiography.

It motivated him to do a study of stock exchange transactions and what he referred to as foolish investments. He came to the
conclusion that the cost to even thrifty investors was one and a half billion dollars a year at that time. At that point he made a life
changingdecision,todosomethingtopreventthelosses.Itputhimonthepath,whichresultedinthefoundingofBabsonBusiness
Statistics,BabsonBusinessCollegeandtheGravityResearchFoundation.

PriortoBabsongraduatingfromM.IT.in1898hesatinProfessorSwainsCivilEngineeringclass.Tomaketheclassmoreinteresting,
Professor Swain used stock market charts to illustrate the application of Isaac Newtons laws particularly of the law of action and
reaction. Babson used the exercises learned in the class to develop his method of analyzing the stock market and investing,
subsequently making his fortune as a financial adviser and investor. While at M.I.T he lobbied for the first ever business course.
EffectivelyhewastheoriginatoroftheMBAdegree.

Roger Babson, himself said that his interest in gravity started with the childhood drowning of his older sister in a river near
Gloucester,Massachusetts.InanessaycalledGravityOurEnemyNo.1,hewrote,Shewasunabletofightgravity,whichcameup
andseizedherlikeadragonandbroughthertothebottom

OneofthethingshevaluedthroughouthislifewaslearningabouttheBritishscientist,mathematician,andphilosopher,IsaacNewton.
Roger Babson was impressed by Newtons discoveries, especially his third law of motionFor every action there is an equal and
opposite reaction. He intuitively combined Newtons various laws of motion, and focused upon the easiest to explain to the public,
which was the third law of motion. He eventually incorporated Newtons theory into many of his personal and business endeavors.
LaterinthisarticlethereaderwillseehowspecificallyNewtonsActionReactiontheoryisappliedtotrading.

Upongraduatingin1898,Rogerknewforcertainthathepreferredanalternativecareer.HisfatherNathanielBabsoncounseledRoger
to find a line of work that would ensure repeat business indefinitely. After careful consideration, Roger Babson decided to try the
world of finance and looked for work as an investment banker. In 1898, Roger began his business career working for a Boston
investmentfirmwherehelearnedaboutsecurities,stocks,andbonds.Inquisitivebynature,RogerBabsonsoonknewenoughabout
investmentstogethimselffired.Actinginthebestinterestsofhisclients,hehadquestionedthemethodsandpricesofhisemployer
andquicklyfoundhimselfoutofwork.BabsonsubsequentlysetuphisownbusinesssellingbondsatcompetitivepricesinNewYork
CityandtheninWorcester,Massachusetts.

Hepublishedhisanalysisofstocksandbondsinanewsletterandsoldsubscriptionstointerestedbanksandinvestors.In1904,with
an initial investment of $1,200, Roger and Grace Babson founded Babsons Statistical Organization, later evolved into Business
Statistics Organization and then Babsons Reports, until eventually it thrived as BabsonUnited Investment Reports. Probably due to

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theInternetandfreestockdata,itcloseditsdoorsin2001.

Babson,inhisautobiographytitledthelastchapterHow$2,000canbecome$831,543withoutborrowingapenny.Asthereaderwill
laterinthisarticle,therearepowerfultechniquesthathedevelopedthatareusefulforatechnicaltradertoachieveandsurpasssuch
agoal.

RogerreadseveralbooksandkeptBrennersPropheciesoffutureupsanddownsinpricesasoneofhisprizepossessions.Hefound
thataparticularquotefromthebookwasimportanttoremember.

Thereisatimeinthepriceofcertainproductsandcommodities,Whichiftakenbymenattheadvance,Butiftakenonthedecline
leadstobankruptcyandruin.

ItwasBrennersbookandabookbyHenryHall,Howmoneyismadeinsecuritiesinvestments,thatRogerBabsonbroughtwithhim
to an important meeting with his old friend, Professor Swain. It was Professor Swain that originally introduced him to the idea of
applyingNewtonsthirdlawofmotiontoinvesting.

ItwasProfessorSwainthatworkedwithRogerBabsontocomeupwithacompositechartcalledtheBabsonchart.

(clickchartstoenlargeformoredetails)

As can be seen in the Babson Chart, a normal line is drawn through the chart, Times above this line were thought of as times of
prosperity and times below it were times of recession or depression. Babson utilized the charts to forecasts not only the times of
prosperitybutthedegreeandlengthoftheperiods.

Babsonwroteinhisautobiography,Ourcontributiontotheanalyzingandforecastingofbusinessconditionswasinconnectionofthe
areas above and below this Normal line. Other systems of forecasting considered only the high and low of the charts, while our
studiesconsideredtheareasofthecharts.

BaseduponNewtonsLawofActionandReaction,weassumedthatafteradepressionarea,equalinareatotheprecedingareaof
prosperity, had developed, another area of prosperity would be due. In making these studies we took cognizance primarily of the
shapeoftheareas.

Thesizeandshapeofnextareaofprosperity,whichwasabovethenormalline,wasindependentofthesizeandshapeoftheprior
areathatwasbelowthenormalline.

Manyscholarshaveexaminedthetheoryandfoundittobeflawed.Asyouwillseeinthisarticle,thescholarsdidnottrulyunderstand
theconcept.

Recentcomputerbasedstudiesofthistheoryhaveledsometotheconclusion,thattheareaabovethenormallineisveryusefulat
forecastingtheturningpointsintheareabelowthenormalline.Furthermore,aswillbeshown,thattheextremesoftheareasabove
thenormallinecanalsobeforecastsuccessfullywithafewmodificationstotheapplicationtotheory.

AnexampleoftheapplicationtotheFXIchartabovetookthreesteps.First,usingaspecialprotocoltheNormallinewasselectedand
drawn

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ThereafterthehighpivotpointwasselectedfordrawinganActionlinethatisparalleltotheNormallineasseeninChartB.

Finally the pivot area of the recession area below the normal line was forecasted by drawing a Reaction line. The Reaction line is
alwaysdrawnparalleltotheActionandNormalline.Itisthesamedistancetothenormallineastheactionlineis.

IntheabovegoldcharttheNormallinewasselectedusingthenormallineselectionprocedure.Thereafterthreeactionpointswere
selected.NotethattheActionandReactionpointsareequidistantformeachotherinrelationtothenormalline.Notethatwhenthe
normallineisdownslopingtheactionpointsthatareselectedarelowpointsandthereactionpointsarehighpoints.Theselectionof
thelowactionpointsfromextremesisnotuniversalintheActionReactionlinecalculationsprocesses.Whatisalsonotuniversalis
thatinthiscasetheActionpointsareequalandoppositetothereactionfromthenormalline.

After the protocol has been applied to selecting the normal line in the above Semiconductor Index chart. the action points were
selectedandthecomputerprogramdrewinthereactionlines.Notethatinthiscaseagainthenormallineisdownsloping,theaction
pointsarelowpointsandthereactionpointsaretypicallyhighpoints.Theactionpointsareequalandoppositetothereactionpoints,

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whenmeasuredfromthenormalcenterline.

WhenAlanAndrewsdrewtheActionReactionlinesbyhandthechartswouldlooklinetheJune2010Goldchartaboveandtheaction
linesandreactionlineswouldbenumberedinordertoidentifythepairsofActionandReactionpointseasily.

ItiswellknownthatRogerBabsonusedActionReactiontheoryforindices.AboveisachartofastockwheretheActionReactionlines
aredrawn.TheActionpointisequalandoppositetothereactionpointwhenmeasuredfromthecenterornormalline.Thepriorthree
examplesutilizedapeaktolowlineforthenormalline,thisistheappropriatelineinover5%ofallcharts.

RogerBabsonresearchedtheapplicationofNewtonsthirdlawofmotionandusedittoforecastimportantturnsinthestockmarket.
Speaking at the Annual National Business Conference on September 5, 1929 Roger Babson observed, Sooner or later a crash is
coming,anditmaybeterrific.JKGailbraithrecords:Babsonwasnotamanwhoinspiredconfidenceasaprophetinthemannerof
IrvingFisherortheHarvardEconomicSociety.Asaneducator,philosopher,theologian,statistician,forecasterandfriendofthelawof
gravity he has sometimes been thought to have spread himself too thin. The methods by which he reached his conclusions were a
problem.Theyinvolvedahocuspocusoflinesandareasonachart.Intuitionandevenmysticismplayedapart.Thosewhoemployed
rational,objectiveandscientificmethodsfailedtoforetellthecrash.Inthesematters,assoofteninourculture,itisfar,farbetterto
be wrong in a respectable way than to be right for the wrong reasons. Wall St was not at a loss as what to do about Babson. It
promptlyandsoundlydenouncedhim.

PerhapsoneofthereasonsthatRogerBabsonwasdenouncedbyJKGailbraith,wasthathistheoryseemedtosimplistictothosethat
didnotunderstanditcompletely.Theywouldhavelearnedthatapplyingthetheorywasacomplexprocess.

SinceMr.Babsonprobablydidnotwanttoconfusehisaudiencehedidnotgivethedetailstothegeneralpublicabouthisforecasting
methods,whichasyoucanseeintheabovechartforecastedthelowintheSPXafterthemarketmadeamassivedropduetothe
eventsofSeptember11,2001.

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CommentsmadebyJKGailbraithindicatedthat,RogerBabsonsforecastingmethodswerefarmorecomplexthanthepublicwasled
tobelieve.ThosethatcametotheGravityResearchFoundationmeetingssuchasAlanAndrews,IgorSigorskyandClarenceBirdseye
wereprivilegedtothedetails.

AlanAndrewstaughtsomeoftheActionReactiontradingconceptstothepublicinhisAction/ReactionCoursethatheofferedafter
heretiredasaProfessorofCivilEngineeringattheUniversityofMiami.Inprivatesessionsandwritingsrecentlydiscovered(often
referredtoasthehiddencacheofAndrewswritings),herevealedthemanyrulesaswellassomethinghecalledtheOrerule.Itisa
mathematicalformulathatProfessorAndrewsrecommendedfortheselectionoftheNormallinesforhighprobabilitytrades.Testsby
RCS which owns the website Innovative Physics.com and Precisiontrader.com, studies have found that there are two extremely
reliabletypesoflinesthatgiveuserslowriskentrypointsatthestartoftrends.

WhenitcomestoNormallines,thereareawidevarietyoftypesoflinesthatmaybedrawnandimportantrulesastowhichoneto
use under varying market conditions. In addition there are rule sets to determine the selection of Action points, which are used to
determinetheReactionpoints.Withtheadventofcomputertechnologytherulesetsareveryeasytoimplement.

TheAuthor,RonJaenischisahighperformancepsychologist,andhasspentyearsstudyingthetechniques,muchofwhichwaswith
Dr. Alan Hall Andrews in Miami. Ron has a library of over 900 pages of the writings of Professor Andrews, referred to as the lost
cacheofAndrewswriting.ThedocumentsarefullofrichdetailsonthedaytodayuseoftheActionReactionTechniques,howthey
wereappliedinrealtimetogeneratesubstantialprofitsandvarioustechniquesthatAlanAndrewsonlytoldtoaselectfew.

ThistreasureofdocumentsgaveRonauniqueopportunitytoapplyNLPinordertomodeltheextremelysuccessfultradingperiodsof
Dr.Andrewsinthe1960sandearly1970s.DuringthistimeAndrewswouldsendoutexacttradingdirectionsonFridayforthenext
week via U. S. mail. During a 6month demonstration period Andrews was able to turn $5,000 into $50,000 trading futures while
givinghisstudentsordersaheadoftimeviasnailmail.

Hismostrecentresearchinvolvesauniquemethodofsignalgeneration,whichutilizesautomaticsignalalternation.Thisissomething
thatAlanAndrewsappearedtobedoingsubconsciouslyinordertogethisspectacularresults.

RonJaenisch,livesintheUSAandhisemailaddressisRonJaenisch@gmail.com.

His website is http://www.andrewscourse.com/ where the updated Advanced Andrews Course (with manuals and videos) can be
orderedaswellasaleatherboundcopyofthehiddencacheAndrewstechniques.

CopyrightRCS2011Allrightsreserved.Withpreviouscontact,permissionisgrantedtoanypublicationtopublishinfull.

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