Volatility Contraction pattern is a setup where price ranges tighten over time, signaling potential breakout points and strong directional moves.
Mark Minervini’s 33,554% run over five years didn’t come from guessing. It came from ruthless discipline and getting really good at one setup: the Volatility Contraction Pattern (VCP).
What Is the Volatility Contraction Pattern (VCP) in Trading?
The Volatility Contraction Pattern (VCP) is a continuation setup inside an uptrend. You’ll usually see 2–6 pullbacks where each one gets smaller than the last.
That tightening action is the whole point: sellers hit the bid, but they can’t push price down much anymore. Volatility compresses, volume dries up, and the stock starts acting like it wants to pop.
Pattern Definition and Formation
A clean VCP starts with a wider shakeout, then progressively tighter dips. Think 20% down, then 10%, then 5%. The range contracts into a “compression zone” where price gets more stable and the lows keep coming in higher.
Volume should fade as the pattern tightens, with the lowest volume showing up near the final pivot. That volume dry-up matters because it’s the footprint of absorption—supply is getting scooped without the stock breaking down.
Historical Context and Relevance
Minervini popularized VCP as a high-probability breakout framework for leaders. It tends to work best when price is above the 150-day and 200-day moving averages and the 200-day is rising. That’s your trend filter—no trend, no VCP.
Market Conditions in 2026
In fast, momentum-driven tape, VCP is still one of the cleaner ways to spot a leader pausing before another leg. You’re basically looking for contraction + quiet volume before expansion.
You’ll often see “tennis ball” behavior near the highs—dips get bought quickly and the stock keeps closing strong. That’s accumulation showing up in real time, and it’s what sets up the breakout with a tight risk box.
How to Trade a VCP Breakout: Entries, Volume, Stops, and Exits
Entry Point Requirements
The entry is simple in theory and hard in practice: you buy the breakout through the pivot/resistance, ideally on a close. Volume is the gatekeeper. You want a real volume surge—typically 40–50%+ above average—so you’re not buying a random uptick.
Breakout Signals
What you want to see:
Decisive close above the pivot/resistance
Volume expansion of 40–50%+ over average
Follow-through with volume staying elevated (often 30–40% above average) for 2–5 sessions
Tight intraday action after the break (not sloppy reversals)
If it breaks out on weak volume (10–20% above average), it’s often a head fake. You can trade those, but you should expect more failures.
Risk Management Protocol
Stop Loss Placement: Typically 7–8% below entry, or just under the low of the final contraction—use whichever is tighter without being silly.
Position Sizing: Start smaller and add if it proves itself. VCPs can fail like anything else, so don’t go full-size on the first push.
Risk Per Trade: Keep the damage controlled. If you can’t take the stop cleanly, your size is too big.
Profit Targets and Exits
Most VCPs are swing setups that form over 3–8 weeks. Targets are usually in the 20–50% range, depending on the stock and the market.
A practical way to manage it is scaling out: take some into strength (say 20%), take another piece higher (30%), then trail the rest using a stop that respects the trend. That keeps you paid while still giving the winner room to run.
How to Spot a VCP on Charts: Screeners, Moving Averages, and ATR
Most VCPs are found the same way: you see a leader in an uptrend, then you notice the candles getting tighter and the pullbacks getting smaller. Higher lows build the floor, while the highs stop advancing as fast, which compresses price into a coil.
Moving averages help keep you out of junk. The cleaner ones stay above the 50-day, 150-day, and 200-day SMAs, with the 200-day sloping up. If the 200-day is flat or rolling, you’re usually forcing it.
Screener Criteria for VCP Detection
When scanning, these filters do most of the heavy lifting:
Price above the 150-day SMA and within ~25% of the 52-week high
2–6 visible contractions, each smaller than the prior pullback
Volume trending down through the base
ATR contracting over the last 3–4 weeks
Average daily volume > 300,000 shares (liquidity matters)
Platform-Specific Tools
A few platforms can speed this up. TradingView’s VCP Screener leans on ATR and volume contraction. TrendSpider has a stricter VCP Detector tied to Minervini’s Trend Template, plus a VCP Base Breakout Scanner focused on 10-day range breaks with relative volume. Deepvue also has a built-in VCP screener.
None of these are perfect, especially on the “feel” part of the pattern. The best workflow is scanner finds candidates, then you confirm the structure by eye.
VCP Pattern Anatomy: Contractions, Base Structure, and Breakout
VCP shows up after a prior advance and a reset, not in random chop. It’s a tightening base inside an uptrend, usually 2–6 contraction waves. Each pullback gets shallower, which tells you supply is drying up and the stock is being supported.
Contraction Phases and Base Formation
The base forms as pullbacks stop making lower lows and start printing higher lows. Volatility literally gets squeezed. Early contractions might be 15–30%, while the final ones are often 5–8% or less.
Some VCPs look like a cup-with-handle cousin, but the key difference is repetition. It’s not one bowl and one handle—it’s multiple tightening waves that keep ratcheting risk down.
VCP Stage Breakdown
Stage | Price Action | Volume Behavior | Duration | Interpretation |
|---|---|---|---|---|
First Contraction | 15-30% pullback from high | Elevated then declining | 2-6 weeks | Heavy selling exhausts |
Second Contraction | 10-15% pullback | Lower than first | 1-4 weeks | Supply drying up |
Third+ Contractions | 5-8% or smaller | Lowest volume (VDU) | Days to 2 weeks | Accumulation phase complete |
Breakout | Surge above resistance level | 40-50%+ above average | 1-5 days | Buying pressure dominates |
Volume and Price Action Analysis
Volume is the tell. In a legit VCP, volume contracts hard into the tight area—often 40–50% below average at the driest point (VDU). That’s where institutions can build positions without chasing.
Price should also “behave” right: quick bounces off support, strong closes, and less intraday slop. Then, when it clears resistance, you want the opposite of quiet—volume should expand 40–50%+ above average to confirm demand is real.
When Does VCP Work Best? Trend Template and Market Conditions
VCP is a continuation play. You’re betting on a leader pausing mid-trend while institutions absorb supply. It shows up most in growth names with real sponsorship, not in laggards trying to bottom.
Minervini’s trend template acts like a bouncer. The usual checks are: within ~25% of the 52-week high, strong relative strength (often cited as 70+), price above key moving averages, and a rising 200-day. If those aren’t in place, the “VCP” is usually just noise.
Market context matters more than people want to admit. VCPs work best when the major indices are in gear—often measured by indices holding above key moving averages like the 10-month/10-period monthly EMA. When the tape is heavy, breakouts get sold.
Also, don’t confuse VCP with cup-and-handle. Cup-and-handle is typically one big structure plus a handle. VCP is multiple squeezes—like a spring being compressed in stages—before it finally releases.
Common VCP Mistakes: Why Breakouts Fail and How to Avoid Them
Most VCP losses come from the same repeat mistakes.
Common VCP Trading Errors
Calling one pullback a VCP — You need multiple contractions. If you can’t point to 2–6 tightening waves, it’s not the setup.
Skipping volume confirmation — Breakouts without real volume are where you get chopped up. The stock has to prove demand.
Forcing VCPs in a bad tape — If the indices are below key levels and breadth is ugly, you’re playing on hard mode.
Trading over-extended, tired bases — More than ~6 contractions often turns into drift. The energy leaks out.
Loose stop discipline — Letting a VCP breakout turn into a 12–15% loss is how accounts bleed. Cut it when it’s wrong.
Practical Application and Adaptation
VCP shows up in true leaders before 20–50% moves, so it helps to track sector strength and where money is rotating. When volatility spikes, breadth collapses, or the market goes risk-off, VCP becomes less reliable—sometimes the best trade is just waiting.
Extra confirmation tools can help filter the junk: relative strength lines making new highs, clean moving average alignment, and momentum staying constructive. Use them as a checklist, not a crutch.
VCP Strategy Summary: Key Rules for High-Probability Breakouts
VCP is a repeatable way to spot accumulation in leading growth stocks before the next expansion leg. The core tells are straightforward: 2–6 tightening contractions, volume drying up into the pivot, then a breakout through resistance with real volume.
Risk control is what keeps it tradable. Keep stops tight (often 7–8% or under the final contraction low) and size so you can take the hit without hesitation.
It also plays best when the market is cooperating. When the indices are trending and breakouts are working, VCP can be one of the cleanest “buy the coil, sell into expansion” setups out there.
Use screeners to find candidates, but trust your eyes on structure and volume. Then execute like a machine—because the pattern only works if you do.
Improve VCP Execution With Trade Journaling and Replay
Most traders don’t lose because they never find a VCP. They lose because they don’t track execution—late entries, ignoring the stop, buying low-volume breakouts, repeating the same mistake and calling it “bad luck.”
RizeTrade’s Trading Journal is built for that kind of cleanup. Import your broker history, tag your VCP trades, and you’ll see fast whether you’re actually following your rules or freelancing.
Trade Replay lets you rewatch the entry and management like game film. The equity curve, P&L calendar, and performance analytics make it obvious where you’re leaking money and what setups are paying you.
Day trader or swing trader, the edge usually isn’t another indicator. It’s knowing your numbers and tightening execution.
Ready to Transform Your Trading?
Sign up with RizeTrade today and unlock the analytics that separate profitable traders from the rest. Import your trades, review your VCP execution, and build consistency.
How do you turn VCP rules into consistent execution over time?
VCP is only “high-probability” when your process is repeatable: the same trend filters, the same definition of contraction, the same volume requirements, and the same stop logic. The fastest way to make that process real is to measure it. After each breakout attempt, review whether you entered at the pivot or chased, whether volume actually confirmed, and whether your stop was placed under the final contraction (or widened after the fact). Over a sample of trades, those notes become actionable metrics: average slippage on entries, percent of breakouts that fail on weak volume, and how often rule-breaking correlates with drawdowns. Using a dedicated trade journal and analytics dashboard keeps the feedback loop tight; for example, Rizetrade trading journal software for performance tracking and PnL analytics can help you tag VCP setups, compare outcomes across market conditions, and identify which execution habits are improving results.