Most investors cannot resist the urge to buy stocks at the wrong time, usually when the

price is declining.
Minervini practice regularly the concept of volatility contraction in order to buy at a very
specific point: the point at which reward outweighs risk. A common characteristic of virtually
all constructive price structures (those under accumulation) is a contraction of volatility
accompanied by specific areas in the base structure where volume contracts significantly.
The main role that Volume Contraction Pattern (VCP) plays is establishing a precise entry
point at the line of least resistance. In virtually all the chart patterns He looks for volatility to
contract from left to right and he wants to see the stock move from greater volatility on the
left side of the price base to lesser volatility on the right side. The price action will result to a
VCP pattern.

It is essential to know if the base created by the consolidation is valid not a faulty one. The
evidence which will signify the completion of a base is the progressive reduction in price
volatility, which will be accompanied by a reduction in volume at particular point. Each
successive contraction contained to about half (plus or minus a reasonable amount) of the
previous pullback or contraction. Sellers become scarcer when they rush to take their profits.
When sellers become scarcer, the price correction will not be as dramatic, and volatility will
decrease. Typically, most VCP setups will be formed by two to four contractions, although
sometimes there can be as many as five or six. This action will produce a pattern, which also
reveals the symmetry of the contractions being formed. I call these contractions Ts.

Not all price patterns display VCP characteristics. There are some variations, such as the
square-shaped Darvas box pattern, or a flat base structure that is four to seven weeks in
duration. With this type of base, there is no real volatility contraction as it remains a tight
and narrow pattern or box, moving in a sideways range with about a 10 to 15 percent
correction from high point to low point. Or a stock could undergo successive consolidations,
with varying degrees of volatility to produce contractions, for example, from a 25 percent
correction, to a 10 percent, to a 5 percent, and so forth, which would be indicative of a
classic VCP progression.