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    Volatility Contraction Pattern

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    James Melchor
    Minervini looks for volatility contraction patterns (VCP) to identify precise entry points for buying stocks. A VCP is formed when a stock's price consolidates over time through progressively smaller contractions in price accompanied by decreasing volatility and volume. Successful VCPs typically involve two to four contractions that reduce the size of pullbacks by half from the previous contraction. Not all patterns display VCP characteristics, such as flat bases or Darvas boxes, but a classic VCP involves successive consolidations with declining volatility and corrections.

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    Volatility Contraction Pattern

    Uploaded by

    James Melchor
    4K views1 page
    Minervini looks for volatility contraction patterns (VCP) to identify precise entry points for buying stocks. A VCP is formed when a stock's price consolidates over time through progressively smaller contractions in price accompanied by decreasing volatility and volume. Successful VCPs typically involve two to four contractions that reduce the size of pullbacks by half from the previous contraction. Not all patterns display VCP characteristics, such as flat bases or Darvas boxes, but a classic VCP involves successive consolidations with declining volatility and corrections.

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    By Mark Minervini

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    Minervini looks for volatility contraction patterns (VCP) to identify precise entry points for buying stocks. A VCP is formed when a stock's price consolidates over time through progressively smaller contractions in price accompanied by decreasing volatility and volume. Successful VCPs typically involve two to four contractions that reduce the size of pullbacks by half from the previous contraction. Not all patterns display VCP characteristics, such as flat bases or Darvas boxes, but a classic VCP involves successive consolidations with declining volatility and corrections.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    4K views1 page

    Volatility Contraction Pattern

    Uploaded by

    James Melchor
    Minervini looks for volatility contraction patterns (VCP) to identify precise entry points for buying stocks. A VCP is formed when a stock's price consolidates over time through progressively smaller contractions in price accompanied by decreasing volatility and volume. Successful VCPs typically involve two to four contractions that reduce the size of pullbacks by half from the previous contraction. Not all patterns display VCP characteristics, such as flat bases or Darvas boxes, but a classic VCP involves successive consolidations with declining volatility and corrections.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 1

    Most investors cannot resist the urge to buy stocks at the wrong time, usually when the

    price is declining.
    Minervini practice regularly the concept of volatility contraction in order to buy at a very
    specific point: the point at which reward outweighs risk. A common characteristic of virtually
    all constructive price structures (those under accumulation) is a contraction of volatility
    accompanied by specific areas in the base structure where volume contracts significantly.
    The main role that Volume Contraction Pattern (VCP) plays is establishing a precise entry
    point at the line of least resistance. In virtually all the chart patterns He looks for volatility to
    contract from left to right and he wants to see the stock move from greater volatility on the
    left side of the price base to lesser volatility on the right side. The price action will result to a
    VCP pattern.

    It is essential to know if the base created by the consolidation is valid not a faulty one. The
    evidence which will signify the completion of a base is the progressive reduction in price
    volatility, which will be accompanied by a reduction in volume at particular point. Each
    successive contraction contained to about half (plus or minus a reasonable amount) of the
    previous pullback or contraction. Sellers become scarcer when they rush to take their profits.
    When sellers become scarcer, the price correction will not be as dramatic, and volatility will
    decrease. Typically, most VCP setups will be formed by two to four contractions, although
    sometimes there can be as many as five or six. This action will produce a pattern, which also
    reveals the symmetry of the contractions being formed. I call these contractions Ts.

    Not all price patterns display VCP characteristics. There are some variations, such as the
    square-shaped Darvas box pattern, or a flat base structure that is four to seven weeks in
    duration. With this type of base, there is no real volatility contraction as it remains a tight
    and narrow pattern or box, moving in a sideways range with about a 10 to 15 percent
    correction from high point to low point. Or a stock could undergo successive consolidations,
    with varying degrees of volatility to produce contractions, for example, from a 25 percent
    correction, to a 10 percent, to a 5 percent, and so forth, which would be indicative of a
    classic VCP progression.

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