VCP Trading Terminology Glossary
- Anita Arnold
- 1 day ago
- 28 min read
trading terminology encompasses technical pattern components (progressive contractions, volume dry-up, pivot points), market environment concepts (Stage 2 uptrend, market regime, relative strength), risk management protocols (7-8% rule, position sizing, stop-loss placement), and learning methodology terms (active recall, chunking, myelin development). This comprehensive glossary defines 60+ essential terms used in Mark Minervini's Volatility Contraction Pattern methodology, from foundational concepts like institutional accumulation and line of least resistance to advanced applications including nested patterns and public accountability. Each definition includes practical context for ASX and global markets, cross-references to detailed articles, and explanation of how terms integrate within complete trading systems. This reference guide serves as the definitive terminology resource for traders learning VCP patterns across all skill levels, organized categorically with alphabetical ordering for quick reference.
How to Use This Glossary
This glossary organizes VCP trading terminology into nine categories: Pattern Structure & Components, Volume & Accumulation Terms, Entry/Timing/Risk Management, Market Environment & Analysis, Fundamental Analysis, Trading Methodology & History, Learning Methodology Terms, ASX-Specific Context, and Tools & Resources. Within each category, terms appear alphabetically for quick reference.
Each definition includes three components: the term itself, a clear explanation with practical context, and a "Learn More" link directing to detailed articles where applicable. Critical terms receive comprehensive 80-120 word definitions providing deep context, while supporting terms receive concise 30-40 word explanations. Where ASX market applications differ from US markets, integrated "ASX Note:" additions explain local adaptations.
The "Learn More" column links to the six hub-spoke articles providing complete context: VCP Criteria Checklist, Line of Least Resistance, Chapter 10 Summary, VCP vs Cup & Handle, What is VCP Pattern, and How to Learn VCP Patterns. These articles provide the comprehensive education supporting quick-reference definitions in this glossary.
For complete VCP methodology integration, see the Complete VCP Trading Guide for ASX Markets.
Pattern Structure & Components
Term | Definition | Learn More |
Base | Consolidation period where a stock builds support before advancing. Bases range from weeks to months, with VCP patterns typically forming bases lasting 4-12 weeks. Stage 1 bases represent initial accumulation, while later-stage bases occur after prior advances. | |
Breakout | Price movement above the pivot point on expanding volume, confirming institutional buying pressure has overwhelmed selling pressure and the line of least resistance has shifted upward. Valid breakouts show 40-50%+ volume expansion above average, closing near session highs, and maintain gains on subsequent days. Failed breakouts reverse below the pivot within days, invalidating the pattern. | |
Breakout Confirmation | Evidence validating that a pivot point breakout represents genuine institutional participation rather than false move. Confirmation includes volume expansion 40-50%+ above average, price closing near session highs, follow-through on subsequent days with higher highs and higher lows, and market environment supporting momentum. Breakouts lacking confirmation often fail within 3-5 days. | |
Coiling Spring | Metaphor describing VCP pattern mechanics where progressive contractions create compression similar to a spring being wound tighter. Each contraction reduces volatility like compressing a spring further. When buying pressure arrives (breakout), the stored energy releases explosively upward. The tighter the coil (smaller final contractions), the more explosive the potential move. | |
Consolidation | Any sideways price movement where a stock pauses its trend, occurring through various patterns including rectangles, flags, pennants, or random sideways action. Generic consolidation differs from VCP-specific progressive contractions—not all consolidations qualify as VCP patterns. Only consolidations displaying mathematical precision of decreasing volatility across multiple phases meet VCP criteria. | |
Cup-and-Handle Pattern | William O'Neil's chart pattern showing one major U-shaped base (7-65 weeks) followed by smaller handle consolidation (1-4 weeks). The cup displays smooth rounded bottom with symmetrical left/right sides, depth 12-33%. The handle pulls back 8-12% on declining volume before breakout. VCP patterns can form within cup-and-handle handles, creating nested patterns. Historical precedent to VCP development. | |
Handle Consolidation | The smaller pullback occurring after a cup-and-handle's U-shaped base recovery. Typically 1-4 weeks duration, 8-12% depth, declining volume. The handle represents final profit-taking before breakout. In nested patterns, handles can display multiple VCP contractions (8%→5%→3%) providing more precise entry timing within the broader cup-and-handle structure. | |
Nested Patterns | VCP patterns forming within cup-and-handle formations, specifically in the handle section. The cup provides well-established base context (7-65 weeks), while the VCP handle delivers precise entry timing through progressive contractions. When nested patterns occur, the VCP structure determines entry timing while the cup provides support levels. Combines advantages of both patterns—extended accumulation plus precise timing. | |
Pivot Point | The highest price reached during the final, tightest contraction of a VCP pattern. This price level serves as the entry trigger—traders place buy-stop orders 1-2% above the pivot point, entering only when breakout occurs with volume confirmation. The pivot point also determines stop-loss placement (below final contraction low). Precise pivot identification enables optimal risk-reward ratios—entries within 5% of pivot achieve 40% better outcomes than late entries 10-15% above. | |
Progressive Contractions | The defining VCP pattern characteristic where each successive consolidation phase becomes tighter than the previous one, typically measuring approximately half the prior contraction's depth. Example: 18%→12%→6% or 25%→15%→8%. This mathematical precision distinguishes VCP patterns from random consolidations. The progressive tightening reveals institutional accumulation completion—with each consolidation, fewer sellers remain. Minimum 2-3 contractions required, ideally 3-4+ for highest-quality setups. Patterns lacking progressive tightening fail VCP criteria regardless of visual similarity. | |
Stage Analysis | Stan Weinstein's trend classification system adapted by Mark Minervini, dividing price trends into four stages. Stage 1: accumulation/basing. Stage 2: markup/uptrend (price above rising 50/150/200-day moving averages). Stage 3: distribution/topping. Stage 4: decline/downtrend. VCP patterns only form validly in Stage 2 environments. Attempting VCP trades in other stages dramatically reduces success probability. | |
Stage 2 Uptrend | The markup phase where price trades above the 50-day, 150-day, and 200-day moving averages with these moving averages in proper alignment (50 above 150 above 200). This represents confirmed uptrend with institutional sponsorship. VCP patterns require Stage 2 context—patterns forming in Stage 1 (basing), Stage 3 (topping), or Stage 4 (declining) lack validity regardless of consolidation structure. Stage 2 confirmation represents the most commonly forgotten VCP criterion. Research shows VCPs in Stage 2 have three times the success rate of patterns in other stages. | |
U-shaped Base | The rounded, smooth bottom characteristic of cup-and-handle patterns. The U-shape indicates measured institutional accumulation over extended timeframe (7-65 weeks) rather than volatile shakeouts. Contrasts with VCP patterns showing sharp V-shaped or W-shaped pullbacks. The smooth curve demonstrates that institutions accumulated patiently without aggressive buying creating volatility. | |
VCP (Volatility Contraction Pattern) | Mark Minervini's signature chart pattern identifying institutional accumulation through progressively tighter consolidations. VCP patterns display 3-4+ contractions where each pullback measures smaller than previous (typically 18%→12%→6%), forming over 4-12 weeks with sharp V-shaped or W-shaped consolidations. Volume declines progressively during pullbacks (supply exhausting) and surges 40-50%+ on breakout (institutional buying confirmed). Seven criteria must align: progressive contractions, volume dry-up, clear pivot point, Stage 2 uptrend, Relative Strength >70, accelerating earnings growth 20%+, and bullish market environment. Pattern differs from cup-and-handle by emphasizing quality of consolidation through multiple tightening phases rather than geometric shape. This systematic pattern recognition contributed to Minervini's 220% average annual returns during championship period. | |
Volatility Contraction | The progressive reduction in price range across multiple consolidation phases. First contraction might span 18% (e.g., $60→$50), second 12% ($62→$55), third 6% ($64→$61). This mathematical tightening indicates supply exhaustion—fewer sellers remain with each phase. Volatility contraction creates the "coiling spring" effect where compressed price action stores potential energy released explosively on breakout. |
Volume & Accumulation Terms
Term | Definition | Learn More |
Buying Pressure | Demand force pushing price upward, evidenced through volume expansion on rallies and up days outnumbering down days. In VCP patterns, buying pressure arrives explosively on breakout after volume dry-up signals selling pressure exhaustion. The transition from minimal buying pressure (consolidation) to aggressive buying pressure (breakout) confirms the line of least resistance shift. | |
Distribution | The process of large investors (institutions) selling positions, opposite of accumulation. Distribution shows increasing volume on down days and decreasing volume on up days—institutions exiting create selling pressure. VCP patterns specifically identify accumulation, not distribution. Patterns showing high volume on pullbacks rather than declining volume indicate distribution and fail VCP criteria. | |
Institutional Accumulation | Large investors (mutual funds, hedge funds, pension funds) systematically building positions over weeks to months. Institutions cannot buy substantial stakes quickly without moving price significantly, so they accumulate during weakness (pullbacks) and consolidations. VCP patterns reveal completed institutional accumulation through progressive contractions with declining volume—each phase shows fewer sellers as institutions absorb available supply. When volume dry-up signals accumulation completion, breakouts become explosive because large buying pressure meets minimal selling pressure. This institutional participation creates VCP pattern reliability—retail enthusiasm lacks the capital to produce sustainable advances. | |
Line of Least Resistance | Jesse Livermore's concept describing the direction where price moves most easily based on current supply-demand dynamics. During VCP formation, the line points downward as selling pressure dominates each contraction. Volume dry-up signals exhausted supply—the line remains downward only because no new buying pressure has arrived. On breakout with volume expansion, the line shifts upward because buying pressure overwhelms depleted selling pressure. Price follows this new path with minimal resistance. Understanding this directional shift separates patient entries (waiting for shift confirmation) from premature attempts (entering before shift occurs). The concept applies universally across markets and timeframes. | |
Selling Pressure | Supply force pushing price downward, evidenced through volume expansion on down days and price unable to hold gains. In VCP patterns, selling pressure progressively exhausts across contractions—each pullback shows lighter volume than previous, indicating fewer sellers remain. Volume dry-up during final contraction signals selling pressure has depleted completely. The absence of sellers creates the explosive potential when buying pressure arrives. | |
Supply and Demand | Fundamental economic principle underlying all VCP pattern mechanics. Supply (sellers) progressively exhausts across contractions as institutions absorb available shares. Demand (buyers) arrives explosively on breakout when institutional accumulation completes. VCP patterns work because they reveal the supply-demand transition visibly through progressive contractions and volume characteristics. When supply is low (volume dry-up) and demand is high (volume expansion), price moves explosively upward following the line of least resistance. | |
Volume Dry-Up | Progressively declining volume across VCP contraction phases, reaching extraordinarily low levels during final contraction—often appearing as if trading was halted or restricted. The visual tell shows volume bars so small compared to prior weeks that charts suggest half-day sessions or data errors occurred. This dramatic absence signals selling pressure has completely exhausted—all weak holders have exited, only institutions and strong hands remain. Ideal dry-up shows 3-5 consecutive days of minimal volume with minimal price movement in the final contraction. Volume typically declines to 40-50% of the 50-day average. The dry-up confirms that supply has been fully absorbed, creating the spring-loaded condition making breakouts explosive. Without proper volume dry-up, patterns lack institutional accumulation confirmation and show higher failure rates. | |
Volume Expansion | Surge in trading volume on breakout, ideally 40-50%+ above the stock's 50-day average volume. This spike confirms institutional participation—large buyers are actively executing breakout orders rather than retail traders chasing alone. The expansion validates that demand has arrived in force while supply remains depleted from the prior volume dry-up. Volume expansion represents conviction—without volume, price movements lack institutional backing. Highest volume often occurs 1-3 days after initial breakout rather than on breakout day itself, showing sustained follow-through. Light-volume breakouts (below average or only 10-20% above) often fail within days. |
Entry, Timing & Risk Management
Term | Definition | Learn More |
7-8% Rule | Maximum stop-loss threshold established by William O'Neil and adopted by Mark Minervini. Once losses exceed 10%, mathematical recovery becomes increasingly difficult (10% loss requires 11% gain, 20% loss requires 25% gain, 50% loss requires 100% gain). The 7-8% maximum stop preserves capital while enabling larger position sizes. VCP patterns naturally accommodate tight stops through their structure—stop placement below final contraction low typically creates 5-8% risk from entry at pivot point. | |
Buy-Stop Order | Order type that triggers market buy when price reaches specified level. For VCP entries, traders place buy-stops 1-2% above the identified pivot point. This ensures entry occurs only when actual breakout movement begins with conviction, avoiding false moves. Market orders risk entering on noise before confirmation. Limit orders risk missing breakouts if price gaps through entry level. Buy-stops balance these concerns by executing only when upward momentum initiates. | |
Entry Point | Specific price level where traders initiate positions. For VCP patterns, the optimal entry point sits 1-2% above the pivot point (highest price of final contraction), triggered via buy-stop order when breakout occurs. Entry timing precision significantly impacts risk-reward: entries within 5% of pivot achieve 40% better ratios than late entries 10-15% above pivot. Late entries destroy mathematical edge by expanding stop-loss distance while contracting profit potential. | |
Maximum Loss | The predetermined capital amount or percentage traders will risk per position before exiting. For VCP trades following Minervini methodology, maximum loss per position is 7-8% from entry price. Total portfolio maximum loss during drawdown periods typically ranges 10-20% before reducing exposure or moving to cash. The maximum loss rule prevents catastrophic capital destruction—traders who violate this rule during emotional moments often experience account-ending losses. | |
Position Sizing | Calculating appropriate share quantity based on account capital, per-trade risk tolerance, and stop-loss distance. Example: $100,000 account, 2% risk tolerance, 7% stop creates $2,000 maximum loss. Divide $2,000 by 7% stop = ~$28,571 position size. VCP patterns' tighter stops (5-8% typical) enable larger position sizes than patterns requiring wider stops (10-12%), allowing concentrated positions while maintaining equivalent dollar risk. Dynamic sizing adjusts based on setup quality—higher-quality VCPs warrant larger positions (15-25% of portfolio), lower-quality setups receive reduced exposure (5-10%). | |
Pivot Point Breakout | The moment price clears the pivot point (highest price of final contraction) on expanding volume, confirming the line of least resistance has shifted upward. Ideal breakouts gap up at open or advance steadily throughout session, closing near daily highs. First 1-2 days after breakout prove critical—price should hold gains and potentially continue advancing. Immediate reversal below pivot on heavy volume indicates failed breakout and triggers stop-loss exit. | |
Risk Management | Comprehensive protocols protecting capital through stop-loss discipline, position sizing rules, portfolio exposure limits, and systematic trade review. Risk management represents the primary determinant of trading survival—pattern recognition skill cannot compensate for poor risk discipline. Christopher Hall's work with thousands of Australian traders reveals risk management failures as the leading cause of account destruction across all trading methodologies, not just VCP patterns. Most failures occur during profitable periods when traders abandon discipline (larger positions, wider stops, lower-quality setups), then experience capital destruction during regime shifts. The 7-8% maximum loss rule, dynamic position sizing, and market environment assessment comprise core risk protocols. Traders who ignore risk management pay expensive market tuition fees—often 100+ hours of learning through capital loss that proper methodology could have avoided. | |
Stop-Loss | Predetermined exit price triggering position closure when reached, limiting loss to acceptable level. For VCP trades, stops sit below the low of the final contraction, typically creating 5-8% risk from entry at pivot breakout. Proper stop placement follows two rules: (1) tight enough to preserve capital if wrong, (2) wide enough to avoid premature exit from normal volatility. Traders must execute stops mechanically without hope or hesitation—failed setups requiring stops are invalidated patterns, not temporary pullbacks. |
Market Environment & Analysis
Term | Definition | Learn More |
Bear Market | Prolonged period where major indices decline 20%+ from recent highs, characterized by distribution, deteriorating breadth, and major indices trading below 200-day moving averages. VCP patterns formed during bear markets face significantly lower success rates—even technically perfect setups struggle when broad market selling overwhelms individual stock strength. Minervini's approach during bear markets: move to cash, preserve capital, wait for environment to improve. | |
Bull Market | Sustained period where major indices advance with expanding breadth, improving leadership, and indices trading above rising 200-day moving averages. VCP patterns achieve highest success rates during confirmed bull markets—the rising tide lifts all boats. Research shows 90.77% of successful VCP breakouts occur when major indices trade above monthly 10-period exponential moving averages, validating the critical importance of market environment assessment. | |
Market Correction | Temporary decline of 10-20% in major indices during bull markets, typically lasting weeks to months. During corrections, even valid VCP patterns face reduced success as institutional buying retreats and risk-off sentiment dominates. Minervini's research indicates VCP success rates decline 60-70% during correction phases compared to confirmed bull markets. Many experienced traders reduce exposure or move to cash during corrections, using the period for pattern study and preparation rather than active trading. | |
Market Environment | The overall condition of major market indices, breadth, sector leadership, and sentiment—collectively determining whether individual stock setups likely succeed or fail. Market environment assessment examines whether indices trade above/below 200-day moving averages, whether breadth expands or contracts, whether leading stocks break out successfully, and whether distribution days accumulate. Constructive environments support aggressive VCP trading. Hostile environments warrant defensive positioning or cash. Finer Market Points' proprietary research shows market conditions can influence individual stock win probability by more than 50%, making environment assessment paramount. Market regime shifts occur within 4-10 days as sentiment changes—yesterday's supportive environment may become today's hostile environment. | |
Market Regime | The current phase of market behavior characterized by specific risk-reward dynamics, volatility patterns, and responsiveness to breakouts. Regimes include: bull market (trending higher, rewarding momentum), correction (consolidating, selective success), bear market (trending lower, defensive), and transitional (mixed signals, low clarity). Identifying current regime determines appropriate trading activity level—aggressive during bull regimes, defensive during bear regimes. Regime identification tools track whether major indices trade above/below key moving averages, whether breadth expands or contracts, and whether momentum setups succeed or fail. Available through FMP Members Portal. | |
Moving Averages (50/150/200-day) | Trend-following indicators calculated by averaging closing prices over specified periods. The 50-day moving average represents intermediate trend, 150-day shows longer-term trend, 200-day indicates major trend. VCP patterns require price above all three moving averages in proper alignment (50 above 150 above 200), confirming Stage 2 uptrend. When moving averages align properly and slope upward, institutional sponsorship is confirmed. Price below these averages or moving averages in improper alignment invalidates Stage 2 requirement regardless of pattern structure. | |
Relative Strength (RS) | Measurement comparing a stock's price performance to the overall market, not to be confused with RSI (Relative Strength Index) indicator. RS rating above 70 indicates the stock outperforms 70% of all other stocks; rating above 90 means outperforming 90%. Minervini requires RS >70, preferably 90+, for VCP trades. High RS stocks demonstrate leadership—they attract institutional attention and lead sector moves. For US stocks, Investor's Business Daily provides RS ratings. For ASX stocks, Finer Market Points calculates RS daily comparing each stock against ASX 200 performance. ASX Note: Manual RS assessment involves overlaying stock price with XJO index—stocks making new highs while XJO remains below its highs demonstrate strong relative performance. | |
Sector Strength | The relative performance of industry groups compared to the overall market. Strong sectors display multiple stocks breaking out, expanding breadth, and leadership in new highs. VCP patterns in leading sectors achieve higher success than patterns in lagging sectors. When healthcare leads the market, healthcare VCPs outperform energy VCPs, and vice versa during energy bull markets. ASX Note: Sector strength proves more influential than individual company profitability for ASX stocks, particularly given prevalence of pre-revenue mining explorers and biotechnology companies among top performers. Tracking sector rotation and thematic leadership matters more on ASX than traditional earnings-based filters in many cases. | |
SEPA (Specific Entry Point Analysis) | Mark Minervini's complete trading methodology encompassing pattern recognition (VCP as primary setup), risk management protocols, market timing principles, and position sizing rules. SEPA represents the "when" component—precise entry point identification after "what" (stock selection via fundamentals and RS) and "where" (Stage 2 trend confirmation) have been established. VCP pattern recognition functions as the timing mechanism within SEPA methodology, integrated with Trend Template criteria, fundamental screening, and strict risk management. The complete system combining VCP with SEPA contributed to Minervini's championship returns. | |
Thematic Leadership | Emerging market narratives or investment themes driving capital flows and stock performance. Examples include electric vehicles, artificial intelligence, renewable energy, or commodity cycles. Stocks aligned with dominant themes often outperform regardless of individual fundamentals. ASX Note: Thematic leadership proves particularly influential on ASX where sector concentration (financials, resources, mining) and commodity linkages create powerful theme-driven moves. Mining exploration companies participating in battery minerals themes or critical minerals trends can dominate ASX top performers despite lacking revenue or profits. Identifying and trading thematic leaders on ASX often produces better results than strict adherence to traditional earnings growth filters. | |
Top Right Trading | Mark Minervini's phrase describing the practice of buying stocks near 52-week highs rather than near lows—trading in the "top right" of the chart where new highs occur. This practice feels counterintuitive but aligns with VCP methodology: patterns form after prior advances (Stage 2), not at bottoms. Jesse Livermore, William O'Neil, and Minervini all emphasized trading leadership at highs rather than value at lows. The psychological discomfort of buying highs causes many traders to seek VCP-like patterns at bottoms, violating Stage 2 requirements and experiencing lower success rates. | |
Trend Template | Mark Minervini's eight-point checklist confirming Stage 2 uptrend: (1) Price above 200-day MA, (2) 200-day MA trending up for 1+ month, (3) 150-day MA above 200-day MA, (4) Price above 150-day MA, (5) Price above 50-day MA, (6) 50-day MA above 150-day and 200-day MAs, (7) Price at least 25% above 52-week low, (8) Price within 25% of 52-week high. Stocks passing Trend Template qualify for VCP pattern analysis; those failing should be ignored regardless of pattern structure. The template filters for momentum and institutional sponsorship. |
Fundamental Analysis Terms
Term | Definition | Learn More |
Earnings Growth | Percentage increase in company profits quarter-over-quarter or year-over-year. Minervini requires accelerating quarterly earnings growth of 20%+, preferably 25%+ for highest conviction VCP setups. Accelerating growth (15%→20%→25%) proves more powerful than stable growth. Investor's Business Daily research shows 75% of biggest stock winners displayed earnings growth above 20% before major advances. ASX Note: ASX companies typically report every six months rather than quarterly, affecting fundamental analysis timing for VCP patterns. Many ASX top performers are pre-revenue mining explorers or biotechnology companies where traditional earnings metrics don't apply—sector strength and thematic leadership often substitute for earnings filters on ASX. | |
Fundamentals | Company financial metrics including earnings, revenue, profit margins, return on equity, and balance sheet strength. While VCP patterns are technical setups, Minervini integrates fundamental screening—technical timing applied to fundamentally strong stocks. Sustainable price advances require fundamental support; technical patterns without fundamental backing often fail. The integration of strong fundamentals with VCP technical timing creates Minervini's complete stock selection methodology. | |
Pre-Revenue Companies | Businesses not yet generating sales, common in biotechnology (clinical trial stages), technology startups (development phase), and mining exploration (drill testing). Traditional earnings growth filters eliminate these companies despite their explosive potential. ASX Note: Pre-revenue companies represent a significantly higher proportion of ASX top performers compared to US markets, particularly mining explorers with promising drill results, biotechs advancing through trials, and technology companies scaling user bases. Filtering strictly for earnings growth would eliminate most ASX's best opportunities—alternative metrics like resource discovery, clinical trial progress, or user growth substitute for earnings on ASX. | |
Quarterly Earnings | Company profit reports released every three months (US markets) or six months (Australian markets). Growth rates compare current quarter to same quarter previous year. ASX Note: Australian six-month reporting cycle versus US quarterly cycle affects VCP fundamental analysis timing—patterns forming between reporting periods lack recent fundamental confirmation available in US markets. This reporting difference requires ASX traders to adapt Minervini's quarterly earnings criteria or rely more heavily on technical pattern confirmation. | |
Revenue Growth | Percentage increase in total sales regardless of profitability. For pre-revenue or unprofitable companies (common on ASX), revenue growth acceleration provides alternative to earnings metrics. Strong revenue growth with improving margins indicates business model scaling—can precede profitability by quarters or years, particularly for technology and biotechnology companies. |
Trading Methodology & History
Term | Definition | Learn More |
Accumulation Phase | Stage 1 in Stan Weinstein's stage analysis where stocks base sideways, building support before advancing into Stage 2. Institutional investors begin acquiring positions during accumulation, preparing for markup. VCP patterns don't typically form during Stage 1 accumulation—they form in Stage 2 after initial advance establishes uptrend. | |
CANSLIM | William O'Neil's stock selection methodology: Current quarterly earnings (25%+ growth), Annual earnings growth, New products/management/highs, Supply and demand (volume), Leader or laggard, Institutional sponsorship, Market direction. O'Neil developed cup-and-handle pattern within CANSLIM framework in 1980s. Minervini learned from O'Neil's concepts, developing VCP as refinement emphasizing progressive volatility contraction. Both methodologies share momentum philosophy, institutional focus, and technical-fundamental integration. | |
Jesse Livermore | Legendary early 1900s trader who first articulated the line of least resistance concept—price follows the path where obstacles are minimal. Livermore emphasized trading with momentum, cutting losses quickly, and letting winners run. His principles influenced O'Neil and Minervini despite trading over 100 years ago, demonstrating timeless supply-demand laws. Livermore's approach to personal responsibility (not blaming markets or brokers for losses) remains relevant for modern traders. | |
Mark Minervini | US stock trader and author who developed the Volatility Contraction Pattern methodology. Minervini won the US Investing Championship with 220% returns (1997), later achieving 155% average annual returns over five years. Author of "Trade Like a Stock Market Wizard" (2011) introducing VCP to broader trading community, and "Think & Trade Like a Champion" (2017) expanding VCP applications. Minervini learned from William O'Neil's CANSLIM methodology, refining cup-and-handle concepts into VCP's progressive contraction emphasis. His systematic approach integrates pattern recognition (VCP), risk management (7-8% stops), and market timing (Stage Analysis) into complete SEPA methodology. | |
Markup Phase | Stage 2 in Stan Weinstein's stage analysis where price advances in uptrend with expanding volume, rising moving averages in proper alignment, and institutional participation confirmed. VCP patterns form during markup phase—the patterns represent mid-trend consolidations during ongoing Stage 2 advances. Markup continues until distribution phase (Stage 3) begins. | |
William O'Neil | Founder of Investor's Business Daily and creator of CANSLIM methodology and cup-and-handle pattern (1980s). O'Neil's research on market winners established principles that momentum, relative strength, earnings growth, and institutional sponsorship correlate with major price advances. His work influenced Mark Minervini's development of VCP patterns—cup-and-handle provided foundation that Minervini refined through progressive contraction emphasis. O'Neil's 8% maximum loss rule, adopted by Minervini, remains core risk management principle. |
Learning Methodology Terms
Note: These cognitive science terms explain how to learn VCP patterns effectively using research-backed methods. For complete learning framework, see How to Learn VCP Patterns: Research-Backed Training Methods.
Term | Definition | Learn More |
Active Recall | Learning technique where information is retrieved from memory through testing rather than passively re-reading. Research by Dr. Cal Newport and Dr. Andrew Huberman shows active recall creates 20% stronger retention than passive review. For VCP learning, taking quizzes testing pattern recognition proves more effective than repeatedly reading criteria. | |
Charting Eye | Instinctive visual pattern recognition developed through repeated exposure and deliberate practice. Experienced traders with developed charting eyes instantly identify VCP setups, Stage 2 requirements, and volume characteristics without consciously checking each criterion—similar to musicians reading sheet music or athletes recognizing plays. Develops through months of consistent practice. | |
Chunking Method | Barbara Oakley's learning concept where complex analysis transforms into single mental units through practice. Initially, traders consciously evaluate each VCP criterion separately. With sufficient repetition, the brain "chunks" these into automatic recognition—instant assessment without deliberate thought. Chunking enables expert-level speed in pattern identification. | |
Feedback Loop | The cycle of action, assessment, and adjustment driving skill improvement. Fast feedback loops accelerate learning—immediate correction prevents reinforcing errors. For VCP learning, feedback comes from quiz results, Friday video verification, forum peer review, and ultimately, market outcomes on trades. Dr. Steenbarger's research shows top traders spend more time reviewing trades (creating feedback loops) than all other activities. | |
Myelin Development | Neurological process where repeated practice with immediate corrective feedback creates insulation around neural pathways, enabling automatic skill execution. Like musicians practicing incorrect bars repeatedly until correct, traders develop myelin through pattern identification practice with feedback. The biological adaptation transforms conscious VCP evaluation into instinctive recognition—the shift from "checking criteria" to "gut feeling" expertise. | |
Paper Trading | Simulated trading using fake capital to practice strategy without financial risk. Allows testing VCP pattern recognition and trade management before risking real money. However, lacks authentic psychological pressure of actual capital exposure. Optimal approach combines paper trading (practice) with micro-sized real positions (psychological reality) before scaling to full size. | |
Pattern Recognition | Cognitive ability to identify VCP structures across different stocks, sectors, and market conditions. Develops from basic (recognizing obvious patterns) to advanced (instant discrimination between valid/invalid setups). Pattern recognition skill determines trading success more than theoretical knowledge—understanding criteria without recognition ability produces no edge. | |
Public Accountability | Posting trade analysis or predictions publicly before market action, creating commitment and feedback. Forum participation prevents self-deception—humans hold conflicting thoughts simultaneously, always believing they were right regardless of outcome. Public commitment formalizes thoughts, creates community feedback, and invokes ego/pride dynamics accelerating learning. Similar to trading desk discussions. | |
Spaced Repetition | Learning technique where material is reviewed at increasing intervals rather than cramming. Hermann Ebbinghaus's research shows distributed practice creates significantly stronger retention than massed practice. For VCP learning, brief daily chart reviews (15-20 minutes) over weeks prove more effective than intensive weekend sessions. Weekly Friday video participation maintains consistent spaced practice. | |
Trade Review | Systematic analysis of completed trades identifying what worked, what failed, and why. Trade review creates time-critiqued feedback loops—markets objectively prove analysis correct or incorrect. Dr. Steenbarger's research shows elite traders spend more time reviewing trades than all other activities. The primary VCP learning failure: jumping from trade to trade without review, preventing skill development and pattern refinement. |
ASX-Specific Context
Note: These terms explain Australian market characteristics affecting VCP pattern application. For complete ASX considerations, see articles throughout the hub-spoke framework.
Term | Definition | Learn More |
ASX (Australian Securities Exchange) | Australia's primary stock exchange trading equities, derivatives, and fixed income. ASX-listed companies display valid VCP patterns with adaptations for local characteristics: lower liquidity than US counterparts, sector concentration in financials/resources/mining, six-month reporting cycles, and prevalence of pre-revenue explorers. VCP principles apply universally, but fundamental filters require adjustment for ASX market structure. | |
ASX 200 (XJO) | Market capitalization-weighted index of Australia's 200 largest companies, serving as primary market benchmark. For VCP Stage 2 assessment, traders evaluate whether ASX 200 trades above its 200-day moving average, breadth expands, and market regime supports momentum. Individual stock strength matters less when XJO is weak—market environment influences individual VCP success by 50%+. | |
Franking Credits | Australian dividend tax credit system unique to local market, affecting investor behavior and stock valuations. Franking credits create structural market differences versus US markets, particularly for dividend-paying stocks and smaller capitalization companies where retail ownership concentrates. This structural difference contributes to unique ASX trading behaviors not observed in US markets. | |
Mining Explorers | ASX companies conducting mineral exploration without current production or revenue. Mining explorers often dominate ASX top performers when commodity themes drive capital flows, despite lacking traditional earnings. Drill results, resource estimates, and permitting progress substitute for earnings metrics. VCP patterns form on mining explorers during commodity bull markets—technical accumulation signals work even when fundamental earnings filters don't apply. | |
Six-Month Reporting | ASX companies report financial results semi-annually (versus quarterly in US), creating longer gaps between fundamental updates. This affects VCP fundamental analysis—patterns forming mid-cycle lack recent earnings confirmation. Traders either wait for reporting cycles to align with pattern completion, or rely more heavily on technical pattern confirmation and thematic leadership when fundamentals are stale. | |
Superannuation | Australia's mandatory retirement savings system creating substantial pension capital deployed in domestic markets. Higher per-capita pension investment versus US affects capital market dynamics, institutional ownership patterns, and smaller-company trading behaviors. This structural difference contributes to ASX market nuances requiring pattern application adaptations. |
Tools & Resources
Term | Definition | Learn More |
Charting Eye Gym | Practice tool providing exposure to diverse VCP chart examples showing how patterns appear across different stocks, sectors, and conditions. Functions like musicians listening to various performers play the same piece—exposure to variations while maintaining core principles builds flexible recognition. Bridges theoretical knowledge and real-time application through structured practice without capital risk. Available through FMP Members Portal. | |
FMP Members Portal | Finer Market Points' member platform providing VCP learning resources including Friday market leader videos, Charting Eye Gym, trader forum, and daily market regime analysis. Available through YouTube membership, the portal creates structured learning environment with weekly consistency, community feedback, and real-time pattern exposure without capital risk. | |
Friday Videos | Weekly FMP analysis videos reviewing VCP formations across current ASX market leaders. Optimal learning approach: scan charts Friday morning forming independent assessments, then watch video verifying accuracy against expert analysis. This prediction-verification loop creates timely feedback identifying recognition gaps. Weekly participation maintains spaced repetition, reinforcing learning through consistent real-time practice. | |
Model Books | William O'Neil's concept: collections of perfect chart patterns for repeated study. Reviewing ideal examples builds pattern recognition through exposure to textbook formations. Similar to musicians studying master recordings or athletes watching game film. Minervini and top day traders maintain model books reviewing best charts and failures—Dr. Steenbarger's research shows this review time correlates with trading performance. | |
VCP Pattern Quiz | Active recall assessment tool testing VCP criteria understanding, pattern recognition accuracy, and volume characteristic identification. Applies research-backed active retrieval methodology—testing creates 20% stronger retention than passive review. Quiz reveals specific knowledge gaps directing targeted study. Multiple attempts over time provide spaced repetition reinforcing learning. Take quiz first (diagnostic), study weaknesses, retake until mastery. Access at FMP Trading Tools. |
Related Resources for Deeper Learning
This glossary provides quick-reference definitions for VCP trading terminology. For comprehensive education on each concept, explore these detailed resources:
Core VCP Framework:
Complete VCP Trading Guide for ASX Markets - Integration of all VCP components with risk management and market timing
What is a VCP Pattern? - Comprehensive VCP explanation with formation mechanics and institutional accumulation dynamics
Detailed Pattern Components:
VCP Criteria: The Complete 7-Point Checklist - In-depth explanation of each VCP requirement
Understanding Line of Least Resistance in VCP Patterns - Volume confirmation and entry timing concepts
Trade Like a Stock Market Wizard: VCP Chapter 10 Summary - Source material explanation from Minervini's book
Pattern Comparison & Application:
VCP vs Cup and Handle: Pattern Comparison - Differences, similarities, and when to use each pattern
Learning Methodology:
How to Learn VCP Patterns: Research-Backed Training Methods - Complete learning framework using cognitive science principles
Practice Tools:
VCP Pattern Recognition Quiz - Active recall testing for skill development
FMP Members Portal - Friday videos, Charting Eye Gym, trader forum, market regime analysis
Frequently Asked Questions About VCP Terminology
Which VCP terms should beginners learn first?
Beginners should prioritize understanding foundational pattern structure terms first: VCP (Volatility Contraction Pattern), Progressive Contractions, Pivot Point, Stage 2 Uptrend, and Volume Dry-Up. These five terms form the conceptual foundation for pattern recognition—without understanding what VCP patterns are, why progressive contractions matter, where entries occur (pivot), why Stage 2 context is required, and how volume confirms accumulation (dry-up), the remaining terminology lacks context. Once these foundational terms are mastered, traders progress to entry and risk management terminology including Stop-Loss, Position Sizing, and the 7-8% Rule. Market environment terms like Market Regime and Relative Strength follow, with learning methodology terms studied concurrently throughout the progression rather than sequentially.
What is the difference between progressive contractions and consolidation?
Consolidation refers to any sideways price movement where a stock pauses its trend, occurring through various patterns including rectangles, flags, pennants, triangles, or random sideways action without specific structure. Consolidations can be wide, narrow, long, short, with inconsistent volatility. Progressive contractions specifically describe the VCP pattern characteristic where each successive consolidation phase becomes tighter than the previous one—typically measuring approximately half the prior contraction's depth in a mathematical progression such as 18%→12%→6% or 25%→15%→8%. All VCP patterns display progressive contractions (it's a defining requirement), but not all consolidations qualify as progressive contractions. The mathematical precision of decreasing volatility across multiple phases distinguishes VCP consolidations from generic sideways movement. This precision reveals institutional accumulation completion rather than random pause in trend.
How do volume dry-up and volume expansion differ?
Volume dry-up occurs during VCP pullbacks when trading volume declines progressively with each contraction phase, often reaching levels so low that charts suggest trading halts or half-day sessions occurred. This declining volume signals supply exhaustion—with each consolidation, fewer sellers remain as institutions absorb available shares. The dry-up confirms selling pressure has depleted. Volume expansion occurs on breakout when trading volume surges 40-50%+ above the stock's average daily volume, confirming institutional buying pressure has arrived in force. The expansion validates that demand overwhelms the depleted supply revealed by prior dry-up. The pattern traders seek shows declining volume (dry-up) during consolidation phases followed by explosive volume (expansion) on breakout—this contrast in volume behavior validates that the line of least resistance has shifted from downward (during consolidation) to upward (on breakout).
What VCP terminology is specific to Australian markets?
ASX-specific terminology includes Six-Month Reporting (versus quarterly US reporting cycles), which affects fundamental analysis timing for earnings growth assessment—patterns forming mid-reporting-cycle lack recent fundamental confirmation available in US markets. Mining Explorers and Pre-Revenue Companies represent a significantly larger proportion of ASX top performers compared to US markets, requiring adaptations to traditional earnings-based filters since these companies lack profits despite explosive potential. Thematic Leadership and Sector Strength prove more influential than individual company profitability for ASX stock performance, particularly given commodity linkages and sector concentration. The ASX 200 (XJO) serves as the primary market index for Stage 2 uptrend assessment and market regime identification. Franking credits and superannuation represent structural market differences creating unique institutional ownership patterns and trading behaviors, particularly affecting smaller capitalization stocks where these factors influence valuation and investor participation differently than US markets.
Where can traders practice using VCP terminology correctly?
Traders practice VCP terminology through multiple structured methods. The VCP Pattern Recognition Quiz tests understanding of pattern components, volume characteristics, and entry criteria using proper terminology, revealing gaps in vocabulary understanding. The Charting Eye Gym provides real chart examples where traders identify and label pattern elements using correct terms—marking up charts with "progressive contractions measuring 18%→12%→6%," "volume dry-up in final contraction," "Stage 2 confirmed with price above 50/150/200-day MAs"—then comparing analysis against professional evaluations. FMP Friday videos model proper terminology usage as experienced traders discuss current market setups using precise VCP vocabulary. Posting analysis in trader forums before market action requires articulating thoughts using exact terminology, creating accountability and feedback on term usage accuracy. This progression from structured testing (quiz) to practical application (Charting Eye Gym) to real-world usage (Friday videos, forum posts) develops fluency with VCP terminology transforming theoretical vocabulary into instinctive communication.
Conclusion
This comprehensive glossary defines 60+ essential terms used in Mark Minervini's Volatility Contraction Pattern methodology, organized categorically with alphabetical ordering for quick reference. Critical terms including VCP, Progressive Contractions, Volume Dry-Up, Pivot Point, Stage 2 Uptrend, Line of Least Resistance, Institutional Accumulation, Risk Management, and Market Regime receive comprehensive 80-120 word explanations providing deep context for pattern application.
ASX-specific terminology notes integrate throughout relevant definitions, explaining how Six-Month Reporting cycles, Mining Explorer prevalence, Thematic Leadership importance, and structural market differences (franking credits, superannuation) affect VCP pattern application in Australian markets. These adaptations prove essential for ASX traders applying US-developed methodology to local market characteristics.
Learning methodology terms including Active Recall, Myelin Development, Pattern Recognition, Feedback Loops, and Public Accountability explain the cognitive science principles underlying effective VCP skill development. These terms connect to the complete learning framework detailed in the dedicated learning article, demonstrating how research-backed methods accelerate pattern recognition mastery.
For traders seeking quick clarification of specific VCP terms, this glossary provides immediate reference. For comprehensive education on each concept, the "Learn More" links throughout connect to detailed articles explaining full context, application examples, and integration within complete trading systems. The glossary serves as both standalone quick-reference guide and gateway to deeper learning across the complete VCP hub-spoke framework.
Sources & References
Mark Minervini Research & VCP Methodology:
Minervini, M. "Trade Like a Stock Market Wizard" (2011). McGraw-Hill. Source material for VCP pattern definition, progressive contractions, seven criteria framework, SEPA methodology, and risk management protocols.
Minervini, M. "Think & Trade Like a Champion" (2017). McGraw-Hill. Expanded VCP applications, refinements based on continued trading experience, and additional pattern examples.
Minervini, M. Championship trading results: 220% returns in 1997 US Investing Championship, 155% average annual returns over five-year period demonstrating VCP methodology effectiveness.
William O'Neil & CANSLIM Methodology:
O'Neil, W. "How to Make Money in Stocks" (2009). McGraw-Hill. CANSLIM methodology, cup-and-handle pattern development, 8% maximum loss rule, and momentum trading principles foundational to Minervini's work.
Investor's Business Daily. Relative Strength ratings, market research on earnings growth correlation with stock winners (75% showed 20%+ earnings growth), and cup-and-handle pattern validation.
Stage Analysis & Market Timing:
Weinstein, S. "Secrets for Profiting in Bull and Bear Markets" (1988). Stage Analysis framework (Stages 1-4) adopted by Minervini for trend identification and market timing.
Market environment research demonstrating 90.77% of successful breakouts occurring when major indices trade above monthly 10-period exponential moving averages.
Learning Science & Cognitive Research:
Newport, C. & Huberman, A. "Dr. Cal Newport: How to Enhance Focus and Improve Productivity," Huberman Lab Podcast, 11 March 2024. Active recall methodology demonstrating 20% stronger retention through retrieval practice versus passive review.
Oakley, B. "Learning How to Learn," Oakland University, Coursera. Chunking methodology for transforming complex analysis into automatic recognition, 2M+ global learners.
Coyle, D. "The Talent Code" (2009). Bantam. Myelin development through deliberate practice with immediate corrective feedback enabling automatic skill execution.
Ebbinghaus, H. Classical memory research on spaced repetition. Distributed practice creates significantly stronger retention than massed practice.
Steenbarger, B. SMB Capital research on elite trader characteristics. Best traders spend more time reviewing trades (creating feedback loops) than all other activities.
ASX Market Structure & Characteristics:
Finer Market Points proprietary research on ASX market characteristics: sector leadership importance over profitability metrics, pre-revenue company prevalence (mining explorers, biotechnology), six-month reporting cycle impacts, and structural market differences (superannuation, franking credits).
ASX reporting requirements, sector composition data, and regulatory framework differences versus US markets affecting fundamental analysis application.
Historical Trading Principles:
Livermore, J. Line of least resistance concept (early 1900s). Foundational principle for momentum-based trading systems emphasizing price follows path of minimal obstacles.
Douglas, M. "Trading in the Zone" (2000). Prentice Hall. Trading psychology and personal responsibility acceptance as prerequisite for mastery development.
Professional Insights: Christopher Hall, Finer Market Points (CAR 1304002, AFSL 526688), based on work with thousands of Australian trading clients, proprietary VCP pattern research database, and daily market regime analysis specific to ASX applications.
All terminology definitions and applications are current as of article publication date (January 2026) and represent the most recent trading methodology information and research validation.
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This content is for educational purposes only and does not constitute financial advice. Past performance is no guarantee of future results.
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