Volatility Contraction Pattern (VCP) Scanner
Scans Nifty 500 stocks matching Mark Minervini's Trend Template + tight price consolidationUnderstanding Mark Minervini's Volatility Contraction Pattern (VCP) Scanner
The Volatility Contraction Pattern (VCP) is a signature chart structure identified by US Investing Champion Mark Minervini. It is a powerful technical analysis pattern that signals institutional accumulation. As a stock consolidates, its price fluctuations become progressively smaller (contracting) on decreasing volume, showing that sellers are exhausted and an explosive breakout is imminent.
Key Components of the VCP Scanner:
- Minervini Trend Template: To qualify for a VCP setup, a stock must first meet strict Stage 2 uptrend criteria: close price above the 150 & 200 SMAs, the 150 SMA above the 200 SMA, the 200 SMA trending up for at least 20 days, and the price trading within 25% of its 52-week high while being at least 30% above its 52-week low.
- Progressive Contraction Waves (T1, T2, T3): Pullback volatility contracts strictly from left to right. T1 represents the primary base correction (deepest shakeout), T2 represents a shallower swing pullback, and T3 represents the tightest consolidation handle before the breakout.
- Volume Dry-up (VDU): During the tightest contraction phase, daily trading volume dries up significantly (below its 20-day average), confirming that floating overhead supply has been absorbed by institutional buyers.
How to Trade VCP Breakouts:
A buy order is placed as price crosses above the VCP Pivot Resistance Level (the ceiling of the final tightest contraction wave, T2 or T3) on above-average volume. The stop loss is positioned slightly below the Pivot Base Support (the floor of the final tight contraction, usually within 2% to 5% risk). This provides an asymmetric risk-to-reward ratio as the stock breaks out into new highs.