Stock Trader With 805% Stock Profit Easy Pattern To Trade

Trading strategies can be as unique as fingerprints. Approaches taught by coaches and other traders are not always transplanted. Students often take cues and ideas from a thesis or pattern and integrate them into their own strategies, building a set of repeatable trades and signals to inform their processes.

That’s what Goverdhan Gajjala, a 44-year-old software consultant from Dallas, did when he refined his trading strategy. He started out as a swing trader, holding positions for days or months at a time — but gradually refined his approach to become a day trader, a change that gave him more control over quick trades.

Gajjala took an online course led by Mark Minervini, an experienced trader and former winner of the US Investing Championship, where he learned to control his emotions and trade using a set of rules. In 2023, he decided to test his skills in the competition that his trainer had previously won. According to the competition’s founder, Norman Zadeh, Gajjala took first place in the stock division for those trading over $20,000, achieving a profit of 805%.

Gajjala trades about five patterns, two of which he shared with Business Insider in previous interviews: the squeeze reversal and the bull flag retracement. The third pattern he looks for, which he adopted from Minervini, is the volatility contraction (VCP) pattern. This represents price action that is tightening as it moves from left to right.

VCP during the day

The VCP pattern can be seen over many days or weeks. But Gajjala uses it for day trades that can last from 30 minutes to an hour. He calls it intraday VCP.

The first sign of the pattern starts with an initial spike in price or an initial move up. This is followed by a series of smaller sell-offs or pullbacks. If it develops into VCP, volatility will decrease in a gradual ascending pattern as it continues to find support at the 21-day exponential moving average line on the five-minute chart. There are longer and shorter EMAs that can work, but during the time period that Gajjala trades, he has found that the 21-day option is the most consistent.

A contraction pattern must be accompanied by decreasing volume bars after an initial and sudden price spike. The spike in green volume bars paralleling the initial price spike shows this in the chart below. Periods of pullbacks are then accompanied by weaker selling pressure, shown by the shrinking red bars as the pattern moves to the right. This pattern will repeat until the selling pressure decreases and the pullbacks become shallower, narrowing the price volatility.

As tensions tighten and selling volume decreases, a breakout could occur.

For Gajjali, this is an easier pattern to trade because the contraction period is longer than other patterns he observes. For example, a bull flag retracement, a price spike resembling a flag on a chart, can happen in a matter of seconds and just two or three candles. This gives him very little time to make a trading decision.

In the case of VCP, he or she can watch the chart for a period of 30 minutes to an hour as volatility decreases and price gradually rises along the 21-day EMA.

“It’s more or less very clear and easy to identify,” Gajjala said. “And the volume profile will be so neat, and I’ll have plenty of time to wait and watch this setup.”

The chart below is an example of an intraday VCP. It shows an initial price spike coupled with high demand as indicated by the green volume bars. This is followed by a tightening contraction and lower volume. The “entry” sign on the chart is where Gajjala is trying to enter. Here, the selling pressure has weakened and price volatility has eased.

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The danger with this type of setup is that a trader may be too early to trade, and the odds of the pattern breaking higher or lower are the same, he noted. That means a trader needs to be more patient to play it.

When Gajjala first started trading VCP intraday, he didn’t have much success because he entered a trade before allowing a contraction to develop. He assumed that an early entry would boost his profits, but the pattern usually broke down.

Below is an example of a trade Gajjala made on Nov. 17 in Syntec Optics Holdings (OPTX) stock. The stock surged at the market’s open, then fell further by 11 a.m., with volume dropping. According to his broker, he entered the trade buying about 24,000 shares at prices ranging from $7.07 to $8.29 and exited at prices ranging from $8.31 to $8.61.

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