What is a megaphone pattern?
Megaphone pattern (well-known term) or Broadening formation (the term from books) is reverse symmetrical triangle trading pattern that is formed on increasing price volatility and diagrammed as two diverging trend lines, one rising and one falling.
How to trade Megaphone chart pattern ?
Another chart pattern employ in technical analysis is the megaphone pattern. The wide formation is a good hint into the risen risk that accompanies change.
The stock market comprises of two giants, that is, buyers and sellers. The contest between the duo forms patterns in the market. To know and identify what patterns stand for is very important.
The way megaphone patterns form earns it a name, ‘broadening formation.’ Stock does migrate without a definite direction due to high volatility. Thus formed megaphone patterns. Higher gets high and lower gets low simultaneously as a result.
Nevertheless, using a megaphone pattern one can get both lower lows and the higher highs. As a result, there is no direction. An important aspect of this pattern is trend lines.
Due to this one must be good at joining the dots, else it assumes the shape of a triangle pattern. This will end up change the way one trade.
Example : Berish megaphone chart pattern :
The process of forming broadening formation is by using the trend line to link the higher highs and lower lows. The shape of megaphone patterns is just like a reverse triangle.
BREAKING DOWN THE BROADENING FORMATION PATTERN
When the market starts having a higher risk for a long period of time then megaphone patterns start forming. One of the key factors contributing to megaphone formation is the election. The reason being that electing a particular leader can change the affair of things in a country. Which later have an effect on the market. Since the political clime is not stable then the market keeps on fluctuating.
Megaphone pattern also forms as a result of the earnings season. Earning reports from companies have an effect on the stock. Earnings may have both good and bad sides. And this cause different reactions. One such reaction results in broadening formation.
Megaphone patterns are usually seeing as the bearish pattern. This is because it is a reverse symmetrical triangle. Whereas normal symmetrical triangles are neutral.
Is the coil pattern the same as the megaphone stock chart pattern? No! It is because the Coil pattern is the symmetrical triangle and the megaphone pattern is the reverse symmetrical triangle.
Swing as well as day trading both capitalize on volatility. Single direction has always been a suitable path that long term investors want to trade.
To successfully trade various patterns, our course on day trading will be helpful. In the volatile pattern, it is better to trade around the trend lines. All base on one style, while hitting angular support it’s very much best to go long. Also, while hitting angular resistance, go short.
Broadening formation or megaphone formation
A food megaphone pattern formed on the one-minute chart by PTI. Either swing or day trader, the best time to buy is when the trend lines are hit. Angular support while long and the angular resistance while short.
The significant part of technical analysis is trend lines. This results in swing and day traders off profit from the change of a broadening formation.
Up to 2 weeks, Swing trading holds overnight. It’s all has to do with one risk management. Technical pointers are in place to assist one get in and out of trades as soon as possible. The trend lines can be used as entry and exit points also as stop losses. The broadening of megaphone patterns indicates the potential to profit is higher. This can also be indicative of the potential for loss is higher.
Thus, there’s a need to trade with effective risk management. Use the technical pointers to self-advantage. The small candlestick 2 to 3 patterns are also useful. The combination of these can provide great entries as well as exits.
Megaphone chart pattern case study
Methodology: In our research, we tried the Pointzero Megaphone indicator (very good megaphone chart indicator) and test last 10 years for EURUSD, GBPUSD, USDCAD, AUDUSD, NZDUSD on H1, H4 and Daily chart.
|Currency pairs||H1 chart||H4 chart||Daily chart|
The results were very bad. We tried to see at least 1:0.8 risk-reward ration. For 1 risk and 1 reward test results will be worse than in our research.
Our tests are made by visual and manual observations so we accept any critique.
How to trade megaphone patterns
Megaphone patterns are often most suitable for day and swing traders. It can also be used by long term investors to use as a sign to support their investments. Just like with any style of trading, it’s better to study and learn the different patterns and what they stand for.
Very often I got the question: “How do you trade megaphones pattern intraday”. To be honest, I avoid trading this pattern on lower time frames and intraday and I try to use it only on H4, Daily and Weekly chart time frames.
The practice trading account begins with opening a paper trading account. As a result, you’ll get good at drawing trend lines and linking the dots to arrive at different patterns; which is a crucial part of trading. In personal opinion, success rate, based on our tests, is bad and we avoid to use this pattern in the trading decisions for smaller time frames. Of course, the weekly and monthly charts can be interesting for this pattern.