What Really is a VCP Pattern? PDF Guide

These charts are extremely helpful for forex which is extremely gaining popularity these days.  Coined by the renowned trader Mark Minervini, the Volatility Contraction Pattern (VCP) is not a geometric chart pattern in the traditional sense, but rather a characteristic Volatility Quality Zero observed in a constructive base, signifying consolidation.

How to Day Trade with the Volatility Contraction Pattern (VCP)?

This characteristic is evident in various chart patterns such as the symmetrical triangle, ascending triangle, descending triangle, and the flag mast, among other.

What Really is a VCP pattern

A perfect VCP exhibits five salient characteristics:

  1. Prior Uptrend: A constructive VCP necessitates Volatility Indicator a prior uptrend. This uptrend is pivotal for the potential success of the base.
  2. Decrease in Magnitude of Price Correction: Following the uptrend, as the price starts to consolidate within a range, each subsequent correction from pivot high to pivot low sees a decrease in magnitude as one moves from the left to the right side of the base.
  3. Decrease in Time for Price Correction: In addition to the decrease in price correction, a constructive VCP showcases a reduction in the time taken ADX Volatility Indicator for each subsequent correction from the left to the right side of the base.
  4. Volume Drying Up: Volumes should gradually diminish when the price retraces to the pivot low and surge again during the upward move.
  5. Subsequent Swing Highs: Subsequent swing highs should be lower than or equal to the first swing high. Any positive slope in the swing highs resembling a rising wedge is considered a bearish pattern.

While conventional wisdom suggests that subsequent swing highs should be lower, the speaker acknowledges instances where they might be slightly higher VWAP Indicator and still result in a constructive VCP, as long as the slope isn’t too steep.

How to Day Trade with the Volatility Contraction Pattern

Number of Contractions (Ts):

Multiple contractions can occur, and in Minervini’s terminology, a contraction is denoted as T. Chart patterns can be analyzed to determine the number of Ts they possess. For instance, a rectangle has one T, a Cup & Handle has two Ts, triangles may have three or more Kicker Candlestick Pattern and a Flag Mast can range from two to five or six.

What Follows a Contraction?

As prices cannot contract indefinitely, they eventually expand, usually breaking out to the upside. A contraction close to zero results in a price expansion Scalping Indicator often in the upward direction. However, it’s note that not all VCPs lead to successful breakouts; some may fail or break down.

What is the VCP technique

Timeframes for VCP Occurrence:

VCPs, being fractals, can occur in all timeframes. Examples provided include VCPs observed in monthly, daily, and 30-minute timeframes, emphasizing their ubiquity Avramis River across different scales in the market. These time frames can help a forex trader to grow rapidly.