Measuring Chart Quality (CQSM)
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Introduction

Chart Quality is a proprietary metric available exclusively on BreakoutWatch.com. This metric was successively refined over several years and combines the theory of the importance of cup-with-handle chart patterns together with practical observations on hundreds of charts.

Our watchlists include both Chart Quality (CQSM) and CANTATA Evaluator (CESM) scores. This allows our subscribers to quickly see which basing stocks have the best combination of technicals and fundamentals and are theoretically the most promising candidates.

We measure chart quality by examining the right side of the cup and the handle area, then calculate a quantitative measure of the quality of each area. We call these metrics "Right Cup Quality" (RCQSM) and "Handle Quality" (HQSM) and then combine them into a single "Chart Quality" (CQSM) metric, which is published on our watch lists. These RCQ, HQ and CQ values are also included for resultant stocks when using the Chart Selector tool.
Right Cup Quality (RCQSM)

As a stock advances from the bottom of the cup, we want to see strong demand, as evidenced by days where above average volume is accompanied by significant upward price movements.

Our Right Cup Quality (RCQ) metric is constructed through examining daily price and volume movements between the bottom of the cup and the pivot point. We assign a value to each day reflecting the importance of the price and volume movements on that day. Because the most recent days' price and volume action is more important than the earlier days, we weight the more recent days more heavily.

Finally, we normalize the total score so that each RCQ is comparable across all charts.

The RCQ score has no pre-defined range of values. In general, values >=1 are most favorable.

Handle Quality (HQSM)

In the handle, we want to see the volume decreasing in combination with a downward drift in price. As with RCQ, we examine the price/volume action for each handle-day and assign a value to each day which reflects favorable vs unfavorable behavior based on the action shown in the following table..

  Volume Movement
Up Down
Price
Movement 		Up Unfavorable Desirable
Down Very Unfavorable Very Desirable

As with RCQ, the price/volume action on the most recent days in the handle is more important than the earlier days, so is weighted more heavily. We also normalize the total so that HQ scores are comparable across all charts.

Additionally, we assign extra weight to the HQ metric if the price and volume were greater than the day before as this may indicate a strong breakout to come. Specifically,

  • if the latest close is higher than the previous close and the latest volume is equal to or greater than the average volume then add 1 to the HQ score.
  • if the latest close is higher than the previous close and the latest volume is equal to or greater than the previous day's volume then add 0.5 to the HQ score

The HQ score has no pre-defined range of values. In general, values >=0 are most favorable.

Chart Quality (CQSM)

We then combine the RCQ and HQ values into a single Chart Quality (CQ) value.

Because longer handles are more desirable than short handles, longer handles are given more weight when combining the RCQ and HQ scores.

The CQ score has no pre-defined range of values. In general, values >=1 are most favorable.