Broadening Formation

A broadening formation, also called a megaphone pattern, is the opposite of a triangle. Instead of converging, price swings get wider over time: each high is higher than the last and each low is lower than the last. Drawn with two diverging trend lines, the shape looks like a megaphone. It shows rising volatility and a market where buyers and sellers are both aggressive but neither can take control.

Anatomy#

What it means#

A broadening formation reflects a market that is unstable and emotional. Each rally attracts buyers who push beyond the last high, and each drop attracts sellers who push beyond the last low. Many breakouts fail in both directions. This type of behaviour is common near major tops, around big news cycles and during periods of uncertainty. Many technical analysts consider broadening tops a warning sign, because they often appear late in uptrends.

Trading a broadening formation#

The pattern is hard to trade because breakouts beyond the lines often reverse. Common approaches:

Trading the swings#

Buy near the lower line and sell near the upper line, like a range, but expect each swing to overshoot the last. Stops must be wide, and position sizes small.

Fading false breaks#

Because price repeatedly breaks the previous high or low and then reverses, some traders wait for a new extreme beyond the prior swing that quickly fails, then trade back towards the other side. See Failed Breakouts and False Breaks.

Trading the eventual breakout#

At some point, price breaks one of the diverging trend lines and keeps going. Confirmation, such as a close beyond the line plus a retest, is especially important here because false breaks are so common.

Risk management in widening markets#

• Reduce position size, because stops need to be wider in expanding volatility. See Volatility and ATR-Based Sizing.
• Take profits sooner, since swings reverse sharply.
• Avoid adding to losing trades on the assumption that the pattern will reverse at the line; the next swing may extend further.

Broadening formation vs symmetrical triangle#

See Symmetrical Triangle.

Common mistakes#

• Trading it like a tight range with small stops.
• Treating every new high as a breakout.
• Forcing the pattern onto ordinary volatile markets without clear diverging swings.

Frequently asked questions#

What is a broadening formation?#

A pattern of higher highs and lower lows that widens over time, like a megaphone, showing rising volatility.

Is a broadening formation bullish or bearish?#

Neither by definition, though broadening tops after long uptrends are often viewed as bearish warning signs. The breakout direction matters most.

Why is the megaphone pattern hard to trade?#

Because swings keep extending beyond prior highs and lows, false breakouts are common and stops must be wide.

Next, learn the bullish compression pattern: the Ascending Triangle.