Volume Contraction Trading Strategy

A play on volumes →

Hey there 👋🏼

Today in less than 5 minutes:

1) Results of our BTST trading strategy!
2) A strategy based on changing trade volumes (with example)
3) 3 volume breakout stocks to trade + scanner link

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Results of our BTST trading strategy

We talked about a BTST strategy yesterday, perfect for anyone who’s looking to make a quick buck, especially if you have time constraints. We also suggested 3 stocks that met the conditions of the strategy, here are the returns they generated:

Stock

WABAG
(VA Tech Wabag)

PIXTRANS
(Pix Transmissions)

ATGL
(Adani Total Gas)

Return as per BTST Strategy

1.19%

4.29%

1.34%

By the way, you can learn several profitable strategies from 40+ expert instructors. 84K+ traders trust us already!

Today, let’s talk about a strategy that you can use to capitalize on the volume behavior of certain stocks. Learn the strategy and stocks we shortlisted ↓

Volume Contraction Strategy

Before we jump into the strategy, let’s learn about the phenomenon of volume contraction in the markets.

A volume contraction for a stock happens when trading activity slows down, and there's less buying or selling. It's like the market taking a breather, deciding whether to make a leap up or down. This calm before the storm is a signal for traders – a potential quiet period before a burst in volatility.

We need to find a narrowing price movement, signaling a potential big move, something like this:

Volume contraction pattern forming on ACE (1D)

It's like finding a tiny toy box in a larger toy chest, inside an even larger storage room. Each box is like a step down in volume, showing a decrease in trading activity. This "box within a box" concept, when observed on a price chart, can indicate a Volume Contraction Pattern, suggesting a calm before a potential storm of market activity.

Here’s how we will enter and exit a trade using this strategy:

Trade Entry & Exit

1) Find charts where boxes of contracting volumes are visible. You can draw boxes, trendlines, triangles, or any other shape to visualize the pattern. The main focus is to see a reduction in volume throughout the pattern.
2) Entry will be taken when the pattern breaks the trendline. In the above chart (ACE), entry was triggered when the price broke the curve trendline.
3) Stop loss will be below the bottom of the rightmost curve.
4) Aim for a minimum risk-to-reward ratio of of 1:2, higher if possible.

This strategy works for both, intraday (15 min timeframe) and swing trading (1 day timeframe).

We tried looking for such stocks ourselves - keep reading to find out what we got!

Learn to use various indicators & tools to identify stocks with bullish momentum in Mr. Khagesh Agarwal’s Momentum Trading Course. Use ’STOCK10 for a 10% discount & get the course for just ₹359.

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Find stocks, get rewarded ⭐️

Did you find any stocks you think are a good fit according to the strategy? Send us the names of those stocks and get rewarded!

This stock is showing volume contraction

We looked for stocks with the above criteria and found the following:

ATGL (1D)

ATGL (Adani Total Gas Ltd.) is showing a classic volume contraction pattern. See how rounding bottoms are being formed. A breakout + rise in volume can be expected anytime soon!

Let’s see if this gives a good breakout! We’ll reveal it in our issue next Monday

VCP stocks scanner

We created a scanner that will help you shortlist stocks on a daily timeframe as per the criteria of the strategy. You can also tweak it as per your style, or add other parameters if needed!

Note that we are not SEBI-registered advisors and none of the above stocks are intended as recommendations. Do your own due diligence before trading/investing.

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