VCP pattern: what it is and how to trade it

Forex traders have been using chart patterns for decades. As the price moves with market supply and demand changes, a trader's ability to find recurrent patterns becomes crucial for making informed decisions and seizing market opportunities.

Numerous patterns appear in the market every day. One of the most popular is the Volatility Contraction Pattern, valued by traders for its reliability.

What is the Volatility Contraction Pattern

Mark Minervini, a renowned technical analyst with 30 years of trading experience, invented the Volatility Contraction Pattern (VCP) to identify bullish stocks with minimal risk. The VCP pattern forms in a bullish market, where the uptrend consolidates before continuing.

One of the key features of the VCP is the series of price contractions within a narrow range bound. The principle behind this pattern is that the market tends to move through phases of accumulation, consolidation, and trending.

The price pullbacks (lows) become shallower during each contraction, indicating that buyers are stepping in earlier each time against reduced selling pressure.

The swing highs in a valid VCP should not be rising. If you see rising swing highs, it probably indicates a rising wedge, which is typically a bearish pattern.

Key elements of the VCP

For price action traders whose primary strategy is based on the breakout, the Volatility Contraction Pattern is a key trading tool. The pattern forms right when the market, such as Forex, contracts and then breaks out before gaining momentum.

A valid VCP has several principal elements.

• Price contractions. The range bound is getting smaller, creating a tight triangle-like range. For instance, if the first pullback is at the 0.61 fib level, the next pullback will reach the 0.5 fib level, and so on. This sequence of shrinking pullbacks indicates a decrease in selling pressure.
• Decrease in volume. The pullbacks are characterised by decreasing volume, indicating few active sellers. The supply is dying off, and buyers are about to take the stage and push the price higher.
• Symmetry and structure. A valid VCP pattern is somewhat similar to the widely known bullish triangle. The pattern forms as a symmetrical series of 2–6 higher lows, indicating that the market is building orders and is almost ready to break out.
• Low supply at the pivot point. This pattern has the lowest supply level just before the breakout. This segment, or the pivot point, signals that the market is about to experience high volatility as prices push higher.
• Continuation of an uptrend. A VCP is a bullish continuation pattern. It is advisable to trade it after a long-term trend when the market pauses (order accumulation phase).

VCP vs. other bullish chart patterns

VCP vs. the Cup with Handle

A valid Volatility Contraction Pattern is characterised by a series of higher lows forming a tighter range that eventually leads to explosive breakouts. This makes this pattern ideal for traders seeking to benefit from momentum.

Contrary to this, the Cup with Handle pattern takes longer to materialise. Moreover, it has a round bottom, unlike the VCP pattern, which has horizontal rising higher lows. The extended round bottom indicates the time big traders, such as hedge funds, take to accumulate their contracts, while the VCP's tighter range signifies a faster breakout.

VCP vs. the Double Bottom

As a price action trader, you must know the Double Bottom pattern. This technical analysis pattern consists of two lows. Traders consider a double bottom a valid bullish reversal pattern when the second price push toward the low fails to take the first bottom. There is only one pullback/retracement for the double bottom pattern. Despite the Double Bottom being considered a reversal pattern, it can also be viewed as a continuation pattern in an uptrend after the price retests the previous support level.

Compared with the VCPs, Double Bottom's lack of accumulation range makes it risky. On the other hand, the sequential contractions in the VCP are low-risk.

How to trade the VCP

As a trader, you should have a strategy that complements the price action. Here, we'll describe the key steps you can follow to trade the VCP.

1. Identify the uptrend in a price chart. Then, identify a higher high, followed by the ranging market pullback. To be successful, the VCP pattern must have at least two ranges bound to indicate an accumulation phase.
2. Ensure that the pattern consists of smaller highs and lows, which indicate decreased supply or selling pressure.
3. Wait for the breakout to indicate the momentum of increased buying pressure. Depending on your strategy, you may enter right after the breakout. However, experienced traders sometimes trade before the breakout to maximise their outcomes.


1 – Uptrend
2 – Breakout/entry
3 – Contraction
4 – Stop loss

4. Finally, ensure the stop loss levels go below the last low before the breakout. Place the profit target depending on the strategy, such as the next resistance levels, or observe candlestick reversal patterns, such as a star pattern.

Remember that no pattern is the holy grail; therefore, risk the money you are ready to lose and use proper risk management.

Volatility Contraction Pattern examples

To be successful as a trader, you must have an eagle eye when identifying this pattern.

1 – Uptrend
2 – Pullback
3 – Higher lows
4 – Breakout

Identify the uptrend. Wait for the pullback indicating an increase in supply. In the VCP pattern, sellers lose momentum shortly thereafter, creating a range-bound market.

This is the critical phase where buyers pay. Wait for the market to finish the contraction phase, which usually has increasing buying pressure but does not exceed the previous higher high, as indicated above.

Finally, wait for a breakout (buying momentum) to execute your trade. Remember that the pattern is not 100% guaranteed; therefore, a stop loss goes below the previous low.

Final thoughts

• The Volatility Contraction Pattern, developed by Mark Minervini, is widely used in technical analysis to identify bullish opportunities with minimal risk.
• It forms during an uptrend when the price consolidates through progressively more minor pullbacks, each with higher lows and decreasing volume.
• This pattern signals that selling pressure is drying up, buyers are stepping in earlier, and a breakout is likely as demand overtakes supply.
• For VCP trading, traders are advised to enter on or just before the breakout, place stop losses below the most recent low, and set profit targets based on resistance or reversal signals.