Case study · 2026-06-27

A textbook VCP, start to finish

The best way to learn a pattern is to walk one trade through every rule, from first tightening to final exit. Here is a constructed, idealised example — the kind of sequence The Coil screen (KALMAT's VCP-style screen) is built to catch.

The backdrop

Meghavarna Textiles (symbol MGVT) enters the story as an established leader: market value around ₹6,800 crore, average turnover about ₹22 crore a day — comfortably above the liquidity floor — and a relative-strength rank of 92 after an eight-month advance from ₹210 to ₹495. Its industry has been sitting in the leading quadrant of the rotation map for a quarter, with two peers carving bases of their own. In late February the stock finally stops going up and starts going sideways.

The base: three contractions, each tighter

• Weeks 1–5: first pullback, ₹495 to ₹391 — a 21% correction on declining volume. Sharp, but orderly for a stock that had nearly doubled.
• Weeks 6–9: recovery to ₹488, then a second dip to ₹434 — 11% this time. Down-day volume noticeably lighter than in the first leg.
• Weeks 10–14: a final drift from ₹492 to ₹467 — just 5% — on the driest volume of the entire pattern. Several sessions trade at barely a third of average turnover.

That is the signature: 21% → 11% → 5%, each swing roughly halving. Sellers are being exhausted at progressively higher floors. Through all fourteen weeks the RS rank never drops below 88 — the stock is resting better than the market is running. The scan marks the pivot at ₹512, the high of the base's right side.

The breakout day

On day 68 of the base, MGVT opens at ₹498, clears ₹512 before noon and never looks back, closing at ₹524 — up 6.1% on the day, 2.3% past the pivot, on 4.2× its 50-day average volume. Every box ticks: a close (not a poke) above the pivot, volume in the institutional range, entry still inside the buy zone, a leading stock in a leading group, and a market health dial in its healthy zone that week.

The trade, by the rules

• Entry: ₹524. On a ₹10,00,000 account risking 1.5% (₹15,000) with the stop at ₹482, risk per share is ₹42 → position ≈ 357 shares (≈ ₹1.87 lakh).
• Initial stop: ₹482 — 8% below entry, just under the pivot zone.
• Day 4: the classic retest — a dip to ₹515 on volume 40% below average. Shrinking-volume pullbacks toward the pivot are noise, not failure. No action; the stop does not move down, ever.
• Week 3: the stock closes at ₹569, up 8.6% from entry. By rule, the stop rises to break-even at ₹524. The trade can no longer lose.
• Weeks 4–17: the advance. MGVT rides its rising 50-day line through ₹600, ₹680, ₹750, never closing below it. Two scary red days occur — one −4.6% session on sector news — but scary is not the rule; a close under the 50-day is the rule, and it never comes.
• Week 18: the trend tires. The stock chops sideways for three weeks while the 50-day catches up, then closes at ₹818, under the line for the first time since entry. Exit next session.

The arithmetic

Entry ₹524, exit ≈ ₹818: +56% in about 91 trading sessions. On 357 shares, roughly ₹1.05 lakh of profit against ₹15,000 of originally budgeted risk — a payoff of about 7R. One trade like this pays for a long string of −8% failures, which is the entire economic engine of the method.

What to take away

• The tightening sequence (21 → 11 → 5%) and volume dry-up were visible before the breakout — the pattern predicted nothing, but it prepared everything.
• Every decision was made by a rule that existed before the trade: pivot for entry, −8% for failure, +8.6% for break-even, the 50-day close for exit.
• The exit surrendered a chunk from the peak. It always does. The trail is designed to capture the fat middle, not the top tick.

Real trades are messier than constructed ones — which is exactly why the next note in this series walks through a breakout that failed.