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A volatility contraction pattern (VCP) is a chart pattern characterized by a series of smaller and tighter price ranges over time, indicating decreasing volatility before a potential breakout.
Key characteristics of a VCP include:
A series of lower highs and higher lows, creating a narrowing price range
Decreasing volume during the contraction period
A buildup of tension before a potential breakout in either direction
Looking at the provided charts:
Ollies Bargain Outlet Holdings (OLLI):
This chart doesn't clearly exhibit a VCP. The stock shows an overall uptrend with some consolidation periods, but there isn't a clear pattern of continuously narrowing price ranges leading up to the marked "buy here" point.
Halozyme Therapeutics (HALO):
This chart shows more characteristics of a VCP, especially in the period leading up to the sharp price increase in early June. There's a visible narrowing of price ranges from April through May, with relatively lower volume, followed by a breakout on higher volume.
While the HALO chart shows some VCP characteristics, it's not a textbook example. The OLLI chart doesn't really exhibit this pattern. To confidently identify a VCP, you'd typically want to see a more pronounced and consistent narrowing of price ranges over several weeks or months before a breakout.
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