Minervini's base formation pattern characterised by progressively tighter price contractions with declining volume — the technical signature of professional accumulation before a breakout.
Deeper Explanation
A VCP forms as a stock corrects from a high: each successive pullback is smaller in percentage terms than the previous (e.g., -15%, -10%, -7%, -4%), and volume dries up progressively as institutional sellers exhaust their supply. This tightening of price range and volume is the technical fingerprint of distribution completing and accumulation beginning. The final contraction — often just 3–5% over one or two weeks — is the "pivot point" from which the breakout occurs. Minervini requires at least two to three contractions for a VCP to be valid; patterns with only one contraction are base patterns, not VCPs. The VCP is the lowest-risk entry in momentum investing because the defined low (the VCP low) provides a precise stop-loss reference.
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