Volatility Contraction PatternVCP
A volatility contraction pattern is a base in which each pullback is smaller than the one before — for example 20%, then 10%, then 5% — often with shrinking volume, before a breakout. The term was popularised by trader Mark Minervini.
The volatility contraction pattern (VCP) is a setup popularised by trader Mark Minervini. Inside an uptrend, a stock makes a series of pullbacks that get smaller each time, while volume dries up. Traders who use it wait for a breakout from the final, tightest range. It is one trader's method, not a guaranteed signal.
- Category
- Price Action
- Reading time
- 3 min
- Also called
- VCP, Minervini VCP
- Updated
VCP in plain words
The VCP is a pattern in which a stock's swings and volume shrink over time before it breaks out.1
Mark Minervini named it; it looks for stocks whose ranges tighten and volume dries up ahead of a strong breakout.1
From left to right across the base, each pullback is smaller than the last.2
How to read a VCP
Start with an uptrend
Start with a stock in a strong uptrend that meets Minervini's Trend Template.1
Count the pullbacks
Look for a base with two to six pullbacks, each shallower than the one before (say 20%, 10%, 5%).1
Watch volume dry up
Check that volume falls as the ranges tighten — a sign selling pressure is easing.1
Find the tightest range
At the final, tightest contraction, both price and volume go quiet.2
Wait for the pivot break
Buy when price breaks the pivot high on strong volume.1
Place a stop
Place a tight stop just under the last contraction's low.1
Worked examples
Example 1 — Shrinking pullbacks
Pattern formingA hypothetical stock pulls back 20%, then 10%, then 5% inside its base.
| Pullback 1 | 20% |
| Pullback 2 | 10% |
| Pullback 3 | 5% |
Each pullback is smaller than the one before (e.g., 20%, 10%, 5%,), which fits the VCP outline.1
Example 2 — Breakout with a stop
+2RA hypothetical pivot sits at 50 and the last contraction low is 47. Price breaks 50 on heavy volume and later reaches 56.
| Risk | 50 − 47 = 3 |
| Move | 56 − 50 = 6 |
The entry came when the pivot was broken by a high-volume line, and the stop sat below the prior contraction’s low.1
Example 3 — Failed break
−1RA hypothetical stock breaks its pivot at 30, then falls back below the last contraction low at 28.5.
| Loss | 30 − 28.5 = 1.5 |
The tight stop under the last contraction's low capped the loss when the breakout failed.1
VCP vs ordinary consolidation
| Aspect | VCP | Ordinary consolidation |
|---|---|---|
| Pullbacks | Get smaller | Any size |
| Volume | Dries up | Varies |
| Prior trend | Strong uptrend | Any |
| Trigger | Pivot breakout | Unclear |
Where traders use it
Advantages and disadvantages
Advantages
- Gives a tight, defined stop.
- Combines trend, price and volume.
- Shows a clear trigger level.
Disadvantages
- Counting contractions is subjective.
- Breakouts can fail.
- It depends on one trader's rules.
- Tight stops can be hit by noise.
Going deeper
Read as far as you need. Each level builds on the one before it.
Common mistakes
Ignoring the trend
Check the uptrend first.
Buying before the pivot
Wait for the break.
Ignoring volume
Look for a volume surge.
No stop
Set a stop under the last low.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- A VCP is a series of shrinking pullbacks in an uptrend.
- Volume should dry up as the ranges tighten.
- The entry is a high-volume break of the pivot.
- The stop goes below the last contraction low.
- It is a method, not a guarantee.
Frequently asked questions
Who created the VCP?
How many contractions are needed?
Does it always work?
Further learning
- Breakout
How breakouts work.
- Volatility
What contracts in a VCP.
- Pullback
The building block.
- Volume
Confirming the break.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- TrendSpider. Volatility Contraction Pattern (VCP): A Trader’s Guide to VCP Trading (opens in a new tab) Checked .
- Business Insider. Trading strategy from veteran trader Mark Minervini (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.