Broadening Formation / Megaphone / Expanding Pattern
Reference values based on Bulkowski's "Encyclopedia of Chart Patterns". Data is primarily from U.S. markets and may differ for other markets.
A pattern where highs rise and lows fall, causing the price range to widen progressively. Also known as a megaphone pattern, it indicates increasing volatility. It reflects market uncertainty where participants hold divergent opinions. While generally considered a bearish signal, direction is neutral as upward breakouts are also possible.
Enter short on a clear downward breakout below the lower trendline. Enter long on an upward breakout above the upper trendline. It is safer to wait for confirmation of the breakout direction before entering.
Project the maximum range within the pattern (difference between highest high and lowest low) from the breakout point to determine the price target. For example: if the highest high is 1220 and lowest low is 850, project 370 from the breakout point.
For short positions, place a stop-loss slightly above the most recent swing high. For long positions, place it slightly below the most recent swing low. Exit if price crosses the opposite trendline within the pattern.
Volume tends to increase with each swing. Increased volume at breakout enhances reliability. Declining volume trends may indicate a false signal.