Day Trading Setups
Volatility Contraction Pattern (VCP)
A stock in an uptrend corrects in a series of pullback legs, and when each leg's real drawdown is shallower than the one before it, that shrinking pattern is read as supply drying up ahead of a breakout.
Read the legs, then call the pattern
Each trial builds a fresh uptrend that corrects in 3 to 4 legs. As each pullback leg finishes, its real depth (peak to trough, in percent) gets computed and logged. Watch the contraction line, then call whether the pattern actually tightened before the tool reveals the real computed verdict and whether the breakout held.
| Leg | Depth |
|---|
Building the uptrend…
How it works
- A leg is one rally-then-pullback cycle. Price rallies to a new local high, then corrects down to a local low before the next rally starts. Each session in this tool builds 3 to 4 of these legs in sequence.
- Depth is computed the same way every time. Local high minus local low, divided by the local high, shown as a percent. That number is what gets logged in the table the instant each leg's pullback finishes.
- Shrinking depth is read as supply drying up. If sellers are getting weaker on each successive pullback, the stock gives back a smaller percentage each time, which is the entire logic behind calling the pattern valid.
- The breakout trigger is a close above the high of the tightest, final leg. Not the overall pattern high from earlier legs, specifically the high set right before the last, shallowest pullback.
- Some generated sessions simply do not contract. A pullback can come in deeper than the one before it, breaking the pattern, and the tool scores your Valid or Failed call against the real computed depths, not against what the chart merely looks like at a glance.
Where this breaks
A tightening shape is not the same as a confirmed breakout
Legs can contract cleanly, peak to trough, and the setup can still fail if the breakout bar itself does not come with real volume behind it, or if the base takes so long to form that the setup goes stale before price ever clears the final leg's high. This is also a narrower read than a simple range squeeze: a Bollinger Band Squeeze Breakout is measuring how tight the whole range has gotten in raw bandwidth terms, while VCP is specifically about the shape of successive corrective legs getting smaller, one at a time. A stock can show a shrinking VCP structure without its Bollinger bands ever pinching, and vice versa, they are reading different things even when they overlap.