Megaphone (Broadening Formation) — Chaos You Can Actually Trade

The megaphone — the broadening formation — is an inverted triangle: instead of narrowing, the price range widens. Increasingly higher highs, increasingly lower lows, two diverging lines, and volume that spikes right along with everyone's nerves. In chart pop culture, the megaphone has a reputation as a harbinger of disaster: "the market is losing control, volatility is exploding, this ends bull runs." The famous "megaphone top" from 1929 has served as Exhibit A for a hundred years.

Bulkowski's measurement is less cinematic. First: the megaphone — in both the top and bottom variant — breaks out upward in 60% of cases. Second: it's a pattern with weak breakout statistics — Bulkowski himself calls the broadening top a "poor performer." Third, and most interesting: the most valuable thing about the megaphone isn't the breakout at all, but a signal that appears before it — the partial decline, which is accurate 72–73% of the time.

How to Identify a Broadening Formation

Bulkowski's identification criteria:

1. Two diverging trendlines: the upper one rises (across increasingly higher highs), the lower one falls (across increasingly lower lows). The shape of a megaphone / inverted triangle.
2. At least 5 touches in total: three highs on one line and at least two lows on the other (or vice versa). Ideally, the middle of the three touches actually touches the line, not just "almost."
3. Price fills the pattern with movement — it travels edge to edge, leaving little empty space. A trend with a volatility spike at the end is not a megaphone.
4. The variant depends on entry: price enters the pattern from below (after a rise) → broadening top; from above (after a decline) → broadening bottom. Statistics for both are similar, with the bottom variant marginally better.
5. Confirmation: a close outside the trendline or beyond the pattern's extreme. Until that moment, the megaphone is exactly what it is — an escalating swing with no direction.

The pattern's special signal: partial rise / partial decline. Partial decline = price bounces off the upper line, falls, but doesn't reach the lower line and reverses — this foreshadows an upward breakout, correct 72–73% of the time. Partial rise (mirror image, foreshadowing a downward breakout) works much worse: 52–53%, a coin flip.

What the Numbers Say (Bulkowski, Encyclopedia of Chart Patterns)

Terms: failure rate — how often price, after a confirmed breakout, didn't even move 5%; average move — from breakout to extreme, on perfect trades; throwback/pullback — a return to the breakout line within 30 days; target % — how often the measure rule works (pattern height projected from the breakout).

Bull market; broadening top: n=1,215 (upward breakouts) / 804 (downward); broadening bottom: n=599/405.

What this tells us:

Downward breakouts are weak in both variants. 26–27% failure rate, an average decline of 13–15%, the target hit only 4 times out of 10, ranking near the bottom of the pack. "Megaphone = crash" is a scenario that's statistically rarer (40%) and weaker.

Upward breakouts are decent, but not outstanding. Rankings of 15–22/39 sit in the middle of the table; average moves of +42–45% look good, but a 16–18% failure rate and a throwback roughly two-thirds of the time place the megaphone clearly behind the leaders (for comparison: the rounding bottom — 4% failure rate, rank 7/39).

The biggest value sits in the partial decline — the leading signal, not the breakout itself. 72–73% accuracy is the single best number attached to this pattern, and the only one that gives you an entry from the band before the crowd sees a breakout.

From the "lessons" Bulkowski distilled across decades of trades: avoid megaphones after a long uptrend, after a fast rally through the pattern (from the lower to the upper band in one move), and unusually tall patterns. The winning special play: busted downward breakout — a downward breakout that quickly reverses; the shallower the dip before the reversal, the stronger the subsequent rally above the pattern.

Disclaimer: US stocks, daily chart, bull market. On crypto, intraday megaphones are often just plain high-volatility noise — no measurement exists.

How to Trade the Megaphone

Approach one: edge to edge (statistically the healthiest). Since breakouts are mediocre and the pattern is wide, the best risk-reward comes from trading the interior: long after a bounce off the lower line (after the third touch, with confirmation in the form of a price reaction), stop below the line/bounce low, target at the upper band. Short mirrors this off the upper line. Caveat: the bands diverge, so each successive swing is bigger — both the target and the potential pain. Bulkowski fairly warns that entering on the third touch is an elevated-risk play.

Approach two: partial decline as a leading entry. Price drops from the upper band, reverses halfway without touching the lower line — you buy on that reversal, stop below the partial decline's low. Accuracy 72–73%, and the entry is half a pattern-width cheaper than chasing the breakout. This is the one thing worth knowing the megaphone for.

Approach three: the breakout. Entry on a close outside the pattern. Target: pattern height (highest high minus lowest low) projected from the breakout point — keeping in mind this works 65–66% of the time on the upside and a mere 41–42% on the downside. After the breakout, a throwback/pullback shows up roughly two-thirds of the time — plan your entry so it doesn't shake you out, or use it as a second entry.

Approach four: busted breakout. A downward breakout fails (decline < 10%), price reverses and closes above the upper line — go long, fueled by the stops of bears who "just had a textbook crash."

What not to do: short a megaphone "because 1929." The statistics say 60/40 for the bulls, and the downside is the weakest side quality-wise.

Watch out for relatives: if one of the megaphone's lines is horizontal, it's not a megaphone — it's a right-angled broadening formation, a separate pattern with its own, sometimes better statistics. Similarly, a widening structure with both lines sloped in the same direction is a broadening wedge. The classification sounds like pedantry, but it decides which table you're pulling numbers from.

Myth vs Measurement

Myth: "The megaphone is a panic pattern — expanding volatility signals a collapse. See a megaphone at the top, get out of your longs and prepare a short."

Measurement: 60% of breakouts go up in both variants, downward breakouts have a 26–27% failure rate and an average reach of -13–15%, and the downside ranking sits near the bottom of the catalog. Expanding volatility is information about disagreement over valuation, not about direction. The market is arguing — and in a bull market, arguments statistically resolve more often in favor of demand.

Where does the myth come from? Big megaphones really did precede spectacular tops (1929, 2000, 2007–08), and those images live forever. Nobody, on the other hand, makes slideshows out of the thousands of megaphones that broke out upward and boringly continued the trend — and as a sample of over 3,000 patterns shows, that's the majority. Classic survivorship bias in charting: we remember the disasters, not the base rate.

No sugarcoating: the megaphone is a second-tier pattern with one first-tier element — the partial decline. If you remember one thing from it, make it this: not the breakout direction, which you don't know in advance, but price behavior at the bands, which you can watch live. A reversal halfway to the lower band tells you more than the rest of this noisy structure combined.

FAQ

Is the megaphone a bearish pattern? No — it breaks out upward in 60% of cases (both top and bottom), and downward breakouts have the weakest statistics: 26–27% failure rate and an average reach of -13–15%. It's a two-sided pattern with a bullish tilt, not a harbinger of a crash.

What is a partial decline? A drop from the upper band that reverses upward without touching the lower line. It foreshadows an upward breakout with 72–73% accuracy — the most valuable signal the megaphone offers, and a chance to enter before the breakout. The mirror-image partial rise works much worse (52–53%).

What's the best way to trade a broadening formation? Edge to edge, or entering on a partial decline; trade breakouts cautiously (62–69% throwbacks/pullbacks), and play the downward breakout best... after it fails — a busted downward breakout is one of the better long plays on this pattern.

FAQ

Rafał — Krypto Bez Ściemy

Trader and founder of Strefa Tradingu. He’s been breaking crypto down on YouTube for years — no hype, no signals, with a focus on market structure and risk management.

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