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Trading Megaphone Patterns 1/13/2017 8.45am

Trading MegaPhone Patterns (Feb. 2017)

Megaphone patterns were first described in Richard Schabacker’s book (1932) "Technical Analysis and Stock Market Profits" as rare and intricate patterns. Megaphone patterns are considered both reversal and continuous patterns and usually appear at the major tops and market bottoms. This pattern may be also called as “Inverted Symmetric Triangle" pattern or “Broadening” pattern and usually develops after a strong up or down trend in the stock price.
Megaphone pattern formations have five distinct swings. Each swing is larger than the previous swing, which gives the formation its Megaphone appearance. The key swing points in the Megaphone pattern are structured with lower low troughs and higher high peaks and are connected by two diverging trendlines. Each of these swings may also include small minor swings. The key swings of the pattern are the first and the fifth swings, which show the reversal of major direction prior to the formation of the pattern. Another unique characteristic of Megaphone top/bottom patterns is that each swing’s increasing volatility triggers the reversals of upside and downside swings.

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