Megaphone Pattern
Markets don’t always move in clean, tight ranges. Sometimes they expand. The swings get wider and the price becomes unpredictable. That’s when the megaphone pattern shows up.
This chart pattern (also known as the broadening wedge pattern) is loud, aggressive, and easy to overlook if you’re not paying attention. You’ll often see it at the top of a move—right before a sharp reversal or a big breakout in the opposite direction.
If you're a swing trader, this pattern can be your edge. It gives you clues about market direction, volatility, and momentum shifts. But to use it right, you need to know the signs, the formation, and how to trade the breakout.
What Is the Megaphone Pattern?
The megaphone pattern shows up when price movement becomes unstable and ranges start expanding.
You’ll see two diverging trendlines:
One pushing upward with higher highs
One pulling downward with lower lows
These create a megaphone shape—wide and getting wider. The trend lines represent buyers trying to push higher, and sellers pushing back harder.
In a top and descending setup, the megaphone forms after a strong uptrend. The market stretches upward, then begins making wild, uneven swings. This shows the trend is weakening, and often leads to a bearish trend or breakdown.
While the pattern looks chaotic, it’s not random. It’s a sign that the market is about to make a decision—and when it does, the move can be sharp and profitable if timed right.
Characteristics of the Chart Pattern
Understanding the traits of the megaphone chart pattern helps you avoid being shaken out and positions you for smarter trades.
Here’s what to look for:
Expanding Swings
Each swing gets wider: higher highs and lower lows
Indicates emotional trading and high volatility
Diverging Trendlines
Two lines forming the megaphone
These trendlines guide you toward the breakout
Appears After a Strong Move
Often follows an uptrend
Signals a shift in market direction
Volume Increases
Volume tends to spike as swings get wider
Adds strength to the pattern
Reversal or Continuation?
A breakdown usually means a reversal
But it can also act as a continuation if the breakout is strong and with trend
Key Price Levels
Upper trend line acts as a resistance line
The lows may be tested more than once before the breakout happens
This pattern often takes time to form, but when it breaks, it doesn’t wait around. Being prepared means knowing what these moves look like and where the trade is.
How to Trade the Pattern
Here’s where traders either make money—or lose fast.
Don’t Trade the Middle
Inside the megaphone, it’s all noise. The price is bouncing hard in both directions. If you enter too early, you’re guessing. Wait for the breakout.
Confirm the Breakout
For a short position, wait for a break below the lower trendline
For a long position, wait for a clean breakout above the upper trendline
Look for volume confirmation. Without it, the breakout could be fake.
Set Your Opening and Stop
Use structure. For example:
If price breaks down at 4100, enter short at 4095
Place your stop just above the resistance at 4110
That keeps your loss small if you’re wrong.
Measure the Move
Use the distance from high to low of the pattern to set your target. If the megaphone stretched 100 points, aim for a 100-point move after the break.
This approach works well for swing traders who want to hold through a few sessions without watching every tick.
Keep Risk Tight
This pattern forms in volatile periods, so your sizing must match. Small positions. Clean exits. Controlled risk. That’s how you stay in the game.
Common Mistakes to Avoid
Trading Too Early
You’re not supposed to trade inside the pattern. The swings are too wide. Wait for a break and a test of direction.
Ignoring Volume
Volume confirms the breakout. If you don’t see a volume push, don’t take the trade.
Skipping the Stop
This pattern breaks hard in either direction. Without a stop, a small loss becomes a big one.
Overlooking the Time
This pattern forms over time. Don’t try to find it on a 1-minute chart. Use 1-hour, 4-hour, or daily charts for cleaner signals.
Assuming It Will Always Reverse
Not every megaphone at the top leads to a reversal. It could break upward in a strong trend. Watch the breakout—not your bias.
FAQ
What causes a megaphone pattern to form?
It happens when traders lose confidence. Price swings get wider, with higher highs and lower lows. That shows fear and confusion in the market.
How do I know if the breakout is real?
Check for strong volume and a solid close outside the pattern. Weak breakouts don’t last.
Is this a reversal or continuation pattern?
It can be either. If the trend is topping out, it’s likely a reversal. If the trend is strong with volume, it might keep going. Watch the breakout.
What’s the best time frame to use?
1-hour, 4-hour, or daily charts work best. They make the pattern easier to spot.
Can I use indicators with this pattern?
Yes, but keep it simple. Volume helps confirm the move. Some traders also use Fibonacci levels for targets.
How often does this pattern show up?
Not often—which is what makes it powerful. Most markets are either trending or ranging. When a megaphone appears, it signals indecision at a major level.
