Technical Definition
The Megaphone Pattern, also known as the Broadening Formation, is a chart pattern where price forms progressively higher highs and lower lows, creating a structure that widens over time like a megaphone. This pattern reflects growing disagreement between buyers and sellers, rising volatility, and emotional participation. Direction remains neutral until a decisive breakout or breakdown occurs.
Imagine a loudspeaker that gets louder and louder until it breaks. Price swings get wider until one side gives up.
Volatility is expanding rapidly
Market Psychology
Disagreement
Participants begin to strongly disagree on value. Volatility starts expanding.
Emotion
Fear and greed dominate. Overreactions drive larger price swings.
Frustration
Stops are triggered on both sides. Confidence drops due to whipsaws.
Resolution
Eventually, one side exhausts the other, leading to a decisive directional move.
Pattern Anatomy
Expanding Highs
Each rally exceeds the previous high. Aggressive buying attempts.
Expanding Lows
Each decline breaks the previous low. Aggressive selling pressure.
Megaphone Shape
Trendlines diverge clearly, forming a widening funnel.
Resolution Zone
A strong breakout or breakdown resolves the pattern.
Pattern Rules
Higher Highs
Each rally should exceed the previous high.
Lower Lows
Each decline should break the previous low.
Divergence
Trendlines must clearly diverge.
Swings
At least two expanding highs and lows must be visible.
Resolution
Direction is confirmed only after resolution.
Tactical Execution
Wait for breakout
Stop loss inside the megaphone
Targets at major S/R zones
Signal Confirmation
- Strong directional candles outside the structure
- Expansion in volume during resolution
- Failure of price to re-enter the structure
- Sustained follow-through in breakout direction