Congruent Event Modeling

Using a recent chart of Air Canada (AC.TO) as the “congruent model”, a random selection of historical matches were searched for and discovered in various stocks. Additional examples of the same congruent model follow throughout this posting. This is the best way to illustrate the usefulness of the analytical method.

As a pre-teen in the 1960’s, I recall reading a fictional story where the protagonist had developed a method to successfully predict next day’s price and direction of a stock. Apparently the character did so by selecting stocks whose ticker symbols were gleaned from particular chapters of biblical verse. The author equated this newly discovered ability to the equivalent of having the business and stock listings section of tomorrow’s newspaper delivered to ones doorstep the previous evening. For some reason, the basic idea (minus religious context) continued to resonate with me through the years.

As an adult I became an avid investor in penny stocks trading on the now defunct Alberta and Vancouver exchanges; the fore runners of the Toronto Venture Exchange (“TSXV”), and the Canadian Securities Exchange (“CSE”). At that time I began looking for trading patterns hidden within the stock listings page using pencil, paper and a hand calculator. After purchasing my first computer some months later, I discovered there were several versions of stock charting software available fully capable of downloading historical trading data. Applying the boxed indicators supplied with the software, I soon found that while the analytical techniques did reasonably well when applied to “blue chip” stocks, they’re performance was abysmal when it came to the juniors and pennies. This prompted me to develop my own custom indicators a few of which continue to be employed to this day in my trading programs.

With the advent of candlestick price formats incorporated within newer versions of the software, I was surprised to find many of my custom signals matching a number of the 42 candle shapes and patterns. To this date I use this pricing format in all my analysis, although the original pattern symbolism has long ago taken a distant back seat within my current analysis method. My research and development of algorithms led to a system capable of analyzing intraday and interday movements of an individual company’s stock with often surprising accuracy. I have coined the method “Congruent Event Modeling.”

Once again, a comparison between the original Congruent Model defined in the Air Canada chart shown to the left and historical examples within two other stocks trading within unrelated economic sectors.

Congruent Historical Modeling, like other forms of stock analysis, uses various algorithms to determine what might reasonably be expected to occur in the next day’s trading session (intraday) or the next hour or minute segment (interday). To understand what any stock chart (or sequence related chart for that matter) is describing, you must first realize that the individual placements shown on the chart are simply moments or “snap shots” taken within a specific time reference. You must break away from the idea that the chart you are seeing is a uniform standardized flow; there is no such thing.

Below are six different charts, each of them Agnico Eagle (AEM.TO) an important gold producer trading on various major exchanges. Each are examples of time intervals ranging from as few as 5 minutes up to as long as a month. (Apologies for the quality of these images)

5 Minutes

1 Day

1 Month

The point behind these images is to illustrate the continuity and similarity in both trend and candlestick patterns exhibited within charts having vastly different time intervals. Off hand, one would be hard pressed to tell the differences between either of them. These are wonderful examples of the fractalism – basically patterns within patterns – all created by the stock exchange specifying that trading data include at least four principal session records; the opening price, the session high, the session low and of course the closing price. Share volumes are often provided but are not included in the present discussion.

Fractal: A generalized pattern that when examined on a smaller or larger scope resembles an approximate copy of the original scale or can be said to retain the “essence” of the original pattern. The mathematical process that produces the design is repetitious or duplicitous in nature and regulated by specific laws and conditions.

The Origin of Trend

As you continue to examine ever smaller intervals of time, you will eventually end up at the “tic”, representing the moment of a single trade made at a mutually agreed upon price. The tic has three options, upward, downward or sideways. An up tic would support an upward or bullish price trend, a down tic a downward or bearish trend, while a sideways motion must indicate neutrality. But the trend itself still does not begin here. It takes place on one of two trading screens; a Level 1 trading screen showing the current bid and ask price of the security and a Level 2 screen that shows a broader listing of bids and asks placed by other traders sitting either higher or lower than the current bid and ask prices, this is the depth of market screen.

As a rough rule of thumb, if the price trend is upward, the bid will lie closer to the last traded price and the volumes behind that bid will normally be larger. If prices are trending lower, then the ask price will lie closer to the last traded price and the volumes behind the ask will be larger than those of the bid. Similarly, in an upward trend on the Level 2 screen, there will be more offers with greater volumes lying closer to the current bid while in a downward trend, the reverse will be true. This is where prices are negotiated; this is where expectations form and shape the pre-trend even before any money changes hands.

courtesy https://www.investorsunderground.com/

Below, a final comparison between the original Congruent Model defined in the Air Canada chart shown to the left and historical examples within two other stocks trading on the senior Toronto Exchange. As you can see, here the resulting movements during the following session are quite different than that of the others shown above. In 85% of the historical events the results were conducive with the first four examples where a pause in the downward trend was indicated, while here prices continued to drop without pause. Nevertheless, any and all results are valid.