Broadening Formations: Patterns, Examples, and Trading Tactics

Search Fintrev

Search our guides, reviews and glossary.

A broadening formation, also called a megaphone pattern or broadening triangle, is a chart pattern in which price makes a series of higher swing highs and lower swing lows. A trendline drawn across the highs slopes up and a trendline drawn across the lows slopes down, so the two lines diverge and the range between them widens over time. The shape records rising volatility without a settled direction: each rally carries further than the last, and so does each decline.

How a broadening formation develops

The pattern forms when market participants disagree sharply about where a security should trade over a short period. Buyers become willing to pay higher prices than on the previous rally, while sellers grow more motivated to take profits or exit on each decline. The result is a sequence of peaks that rise and troughs that fall.

To identify one, a trader needs at least two higher pivot highs and two lower pivot lows. Connecting the highs gives the upper line and connecting the lows gives the lower line. Once both lines slope away from each other, the outline resembles a megaphone, or a symmetrical triangle turned on its side and reversed.

The disagreement may be noise, or it may reflect real uncertainty about fundamentals. Common triggers include:

• Political risk, such as an upcoming election where shifting polls and policy proposals swing sentiment between bullish and bearish.
• Earnings season, when mixed quarterly results produce alternating bursts of optimism and pessimism.
• Macro shocks, such as geopolitical conflict or a change in central bank policy direction, especially when several arrive together.

Markets that are trending steadily do not produce this shape, because a trend by definition keeps making highs and lows in one direction. Broadening formations belong to periods when participants are digesting unsettling news and cannot agree on its meaning. On short time frames measured in minutes or hours, these widening swings appear more often, which is one reason day traders encounter them more frequently than position traders.

Worked example (hypothetical)

Assume a stock prints the following pivots on a daily chart:

Each swing is larger than the one before, and the highs ($50, $52, $54) and lows ($46, $44) slope away from each other. That satisfies the definition.

Projecting the lower line forward, the next touch might come near $42. A swing trader could plan a long entry near that line with a target near the projected upper line, perhaps $56, and a stop a little below the lower line. The reward is roughly $14 per share. The same widening that enlarges the target also enlarges the stop distance, because the trader cannot place a tight stop inside a range that is expanding. Sizing the position from that stop distance, for example with a position size calculator, keeps the dollar risk constant even as the pattern grows.

How traders use the pattern

Trading between the lines. The basic approach is to buy near the lower trendline and sell near the upper one, or the reverse for short trades. In a broadening formation each completed swing offers a larger move than the previous one.

Confirming turns with momentum. Because a touch of a line does not guarantee a reversal, traders often look for momentum evidence before entering. An oscillator such as the Relative Strength Index (RSI) reaching an extreme near a trendline, or turning back from one, can suggest the swing is exhausting.

Managing widening risk. Volatility measures help set stops that match the current swing size. The Average True Range (ATR) gives a way to place a stop beyond normal noise rather than at an arbitrary distance.

Reading it as a context signal. For trend followers and long-term investors, the pattern is generally treated as bearish or at least cautionary, since it shows rising volatility without a clear trend. Some use it as a reason to reduce exposure rather than as a trade setup.

Limitations

• Hindsight drawing. Trendlines can only be drawn once pivots have formed, and different traders may choose different pivots, producing different lines.
• Growing losses. A stop that respects the pattern gets wider with each swing, so losing trades cost more if position size is not reduced.
• No fixed exit from the pattern. Price can close beyond either line. When that happens, the premise that the lines will act as turning points no longer holds, and a trade built on that premise needs to be closed or reassessed.
• News sensitivity. The same events that create the pattern, such as elections or policy decisions, can produce gaps that jump past a stop.

Distinctions readers confuse

• Symmetrical triangle: lines converge, so volatility contracts. A broadening formation is its mirror image. The triangle pattern page covers converging variants.
• Price channel: lines run parallel and swing size stays roughly constant.
• Broadening wedge (expanding wedge): both lines slope in the same direction but still diverge. In an ascending broadening wedge both lines rise; in a descending broadening wedge both fall. A classic megaphone has one line rising and one falling.
• Expanding flag: the term is used for a small broadening shape that forms as a pause inside a larger move, rather than as a standalone top or bottom.

The Bottom Line

Short-term traders who buy near the lower line and sell near the upper one can use broadening formations, ideally confirming turns with RSI and setting stops with ATR. Trend followers and long-term investors usually read the pattern as a cautionary sign of rising volatility, and some reduce exposure. Either way, risk grows with every swing, so sizing positions from the stop distance matters more than the target.