Mark Minervini’s VCP (Volatility Contraction Pattern) trading strategy involves considering an entry when a stock in an uptrend experiences progressively smaller pullbacks and declining trading volume before breaking through a resistance price. The key is not simply identifying a chart pattern, but defining the entry price, stop-loss price, and acceptable loss before buying. However, the appearance of a VCP pattern does not guarantee that the price will rise.

Drawing on Mark Minervini’s books and related trading rules, as confirmed based on 2026-10-29, this article examines entry conditions, stop-loss and profit-taking methods, and how to distinguish failed patterns.

What Kind of Chart Should You Look for When Identifying a VCP?

VCP stands for Volatility Contraction Pattern. It describes a price structure in which the range of price fluctuations gradually narrows through several successive pullbacks after a stock has risen. Mark Minervini discusses this pattern in his 2017 book, Think & Trade Like a Champion, explaining that it can generally involve two to six contractions. This is described in the book’s explanation of the VCP pattern.

Hypothetical example for understanding the pattern

25%

First pullback / First contraction

A relatively large pullback following an advance

15%

Second pullback / Second contraction

A smaller pullback than the previous one

8%

Third pullback / Final contraction

Check whether the price range narrows and trading volume declines

Check for a breakout above the pivot

Watch to see whether the price breaks above the high of the final contraction

25% → 15% → 8% are hypothetical figures used for illustration, not fixed pullback percentages that apply to every VCP. What matters in this pattern is not merely that pullbacks become smaller. You should also examine whether the stock is already in an uptrend, how trading volume changes during each pullback, and whether the price holds above the low of the final contraction.

Conditions to Check Before Selecting a Stock as a Potential Buy

VCP is not a technique for indiscriminately buying stocks in downtrends simply because they appear to be near their lows. Minervini advocates first confirming an uptrend and then examining the price structure. His book’s trend template and explanation of VCP provide useful references.

In practice, check the following items in order.

Trend: Is the stock in an uptrend, with its major moving averages arranged favorably?

Pullback structure: Do the pullbacks become progressively smaller from left to right?

Trading volume: Does volume during the final contraction decline compared with previous pullbacks?

Price resistance: Can you clearly identify the pivot price that will serve as the breakout threshold?

Stop-loss placement: Can you establish a stop-loss price based on the low of the final contraction?

Market conditions: Are broader market trends becoming unfavorable to your trading plan?

These conditions are intended to filter potential candidates. Even if every condition is met, a breakout can fail, so a buy signal should not be treated as synonymous with a successful trade.

How Do You Determine the Entry Price?

The VCP entry reference is the pivot, or high, of the final contraction. Rather than buying immediately when the price breaks above the pivot, check whether the breakout is confirmed by the closing price and trading volume. First, calculate whether the distance between the breakout price and the stop-loss price represents an acceptable risk.

3 Prices to Check Before Entering

Pivot price

The high of the final contraction. This is the reference level used to determine whether a breakout has occurred.

Actual entry price

The price at which the order is actually filled after the breakout is confirmed. It does not necessarily match the pivot price.

Stop-loss price

Set it with reference to the area around the low of the final contraction. If the stop-loss distance required by the price structure is too large, it may be better to skip the trade.

Minervini’s book describes an approach that considers trading volume and price action alongside a breakout above the pivot. However, a particular volume multiple or breakout-confirmation method should not be treated as a universal formula applicable to every stock.

Common mistakes in practice include buying before the price reaches the pivot or entering too late after the price has already risen substantially following a breakout. In the first case, the pattern may not yet be complete. In the second, the greater distance to the stop-loss price can worsen the risk-reward ratio.

How Do You Calculate the Stop-Loss Price and Position Size?

A stop-loss should be determined before buying, not decided emotionally after the stock price falls. Mark Minervini’s book Think & Trade Like a Champion explains the principle of setting an initial stop-loss price in advance and adjusting the stop upward to protect profits as the stock rises. The book’s discussion of risk management and stop-losses provides further guidance.

Let’s examine how the entry and stop-loss prices affect position size through a calculation example.

Hypothetical example — not an actual stock or trading result

VCP Trading Risk Calculator

Account balance (KRW)Entry price (KRW)Stop-loss price (KRW)Acceptable loss as a percentage of the account### 1%

0.25%1%2%1Planned loss per share

KRW 400

Planned number of shares to buy

250 shares

Required purchase amount

KRW 2,500,000

Planned loss if the stop-loss is triggered

KRW 100,000

Stop-loss distance as a percentage of the entry price

4.00%

Position sizes were rounded down to whole shares. Additional losses from commissions, taxes, slippage, sudden price movements, and gap-downs were not included.

The calculation above illustrates how to determine a position size so that only a specified percentage of the account balance is exposed to potential loss. There is no guarantee that a stop-loss order will execute precisely at the specified price, and the maximum loss permitted by the calculation does not necessarily represent the actual maximum loss.

In particular, if the low of the final contraction is too far below the entry price, it may be necessary to exclude the stock rather than force the stop-loss level closer to the entry. A stop-loss that ignores the chart structure can increase the likelihood of being stopped out by normal price fluctuations.

At What Percentage Should You Take Profits?

There is no single fixed profit-taking percentage that applies to every VCP trade. Minervini discusses both taking profits during strong price advances when a stock moves favorably and protecting gains when price action weakens. His explanation of selling plans in his book is a useful reference.

It is best to establish a profit-taking plan before entering a trade. The following is one example of how to structure a trading plan.

Initial stop-loss: Set it below the low of the final contraction.

Profit target: Calculate the target as a multiple of the initial risk amount, or set it based on a predefined price structure.

Profit protection: Once the stock has risen sufficiently, raise the stop-loss to help prevent gains from turning into a substantial loss.

Trend weakening: If the price falls back below the pivot after the breakout or a sell signal appears, respond according to the existing plan.

For example, if the entry price is KRW 10,000 and the stop-loss price is KRW 9,600, the initial risk per 1 share is KRW 400. In a separate hypothetical strategy that sets the target at 2 times this risk, the target price can be calculated as KRW 10,800.

Here, KRW 10,800 is merely an illustrative assumption, not a fixed profit-taking price that Minervini has prescribed for every VCP trade. The actual target may vary depending on the stock’s price structure, market conditions, and trading plan.

Three Common Scenarios in Which VCP Trades Fail

One weakness of the VCP strategy is that a breakout may fail to continue even when the chart appears to show a fully formed pattern. To avoid interpreting a pattern too favorably in hindsight, traders should establish in advance both the conditions under which they will refrain from buying and those under which they will cut their losses.

Failure 1. Pi

※ This article is for informational purposes to help readers understand market movements and does not constitute a recommendation to invest in any specific stock or asset. The final decision and responsibility for investment outcomes rest with the individual.