Now that the market is in a correction, it's time to take a step back and look at some past winners.

 

DDD was talked about a lot this year so I figured why not annotate its run that almost quadrupled its price.

 

As you can see from above, I obviously read Minervini's new book (www.minervini.com) and really like the concept of the Volatility Contraction Pattern (VCP) as an added tool to detect a promising pivot. This pattern is not necessarily mutually exclusive with the classic patterns we discuss here all the time. It's very basic in premise: the stock's price volatility must progressively contract over the course of the pattern while volume dries up. It's characterised by length of time, the % correction in the largest leftmost lobe of volatility (see annotations) and the % correction of the rightmost lobe. The pivot is the high joining the last and second last lobe.

 

The first VCP (cut off in chart to the left, see snapshot below)  looks perfect as per his book except for one thing: although the stock rose 56% prior to the beginning of the pattern, it's still within its trading range. The stock should be near it's 52 week or better, all-time high. However the contraction pattern and dryup look great and the breakout wouldn't have touched any rational stop.

 

 

The Cup with flawed handle I annotate is actually also a VCP. Note how the annotations I used are similar to his style in the book. This is actually  a really convenient way to annotate the health of a base in shorthand. Definitely a good habit to adapt to your needs.

 

The tail end of the ascending base is actually yet another VCP and even better it's timing is 5% better than the ascending base (BP of  35.24 vs 37). The breakout from both coincided on the same day.

 

A final VCP occurs prior to the exhaustion gap.

 

The only sell signals I can see on this chart is in September when it breaks the 50 day in increasing volume. Otherwise buying each position with an 7% stop loss wouldn't have caused a problem.

 

15.24 to 71.22 is a 367% gain.