Broadening Top (Megaphone): Definition, How to Trade, and Example

What Is a Broadening Top?

A broadening top, often called a megaphone pattern, is a chart formation in which price swings widen over time. Each successive high is higher than the last, and each successive low is lower than the last, producing two diverging trendlines. On a chart, the shape looks like an expanding triangle or the bell of a megaphone - hence the nickname.

The broadening top is classified as a bearish reversal pattern. It typically forms after an uptrend, during a period of heightened volatility and emotional trading. The widening swings reflect a market that is losing consensus: bulls push higher but cannot hold the gains, bears push lower but cannot sustain the selling. Eventually, the bears win and price breaks below the lower trendline.

Unlike neatly converging patterns such as triangles and wedges, the broadening top is messy by nature. The expanding range means that stops placed inside the pattern are vulnerable to being hit by normal noise, and the pattern's relatively low follow-through rate (~55%) makes it one of the harder formations to trade profitably.

How a Broadening Top Works

The pattern works - when it works - because the expanding volatility signals that the uptrend is losing structural integrity. In a healthy trend, pullbacks are orderly and contained. In a broadening top, each pullback undercuts the previous one, revealing that buyers are no longer willing or able to defend prior support. At the same time, each rally overshoots the prior high on thin or erratic volume, suggesting that the new highs are driven more by short-covering and panic buying than by genuine demand.

The battle between bulls and bears produces a tug-of-war that neither side wins cleanly during the formation. The resolution comes when price finally breaks the lower trendline and bears gain decisive control. The measured-move target is the height of the pattern at its widest point, projected downward from the breakdown.

Volume behavior inside a broadening top is inconsistent. Unlike wedges or triangles, where declining volume is a textbook clue, the megaphone often shows spikes of volume on both rallies and declines. This makes volume-based confirmation less useful and forces traders to rely more heavily on the price break itself.

How to Identify a Broadening Top

A valid broadening top requires at least five swing points: three roughly alternating highs and two lows (or vice versa) that form two diverging trendlines. The pattern must appear after a prior uptrend to qualify as a reversal.

• The upper trendline slopes upward, connecting at least two higher highs.
• The lower trendline slopes downward, connecting at least two lower lows.
• The two trendlines diverge - the range expands over time.
• The pattern typically forms over several weeks to months on a daily chart.
• There is no reliable volume signature; volume is often erratic throughout.
• Confirmation requires a decisive close below the lower trendline.

How to Trade a Broadening Top

The safest entry is a short position after a confirmed close below the lower trendline. Because the internal swings are wide, many traders wait for a close below the trendline and then a retest from below before entering. This retest entry reduces the risk of a false break, which is common given the pattern's erratic nature.

The stop loss goes above the most recent swing high inside the megaphone. Given the pattern's wide range, this often means the stop is far from the entry, which is why position sizing must be smaller than usual. If the risk per share is large, cut the share count accordingly.

The textbook target is the height of the megaphone at its widest point, projected down from the breakdown level. Many traders use a closer first target - perhaps 50% of the measured move - and trail the stop on the remainder, given the pattern's mediocre reliability.

• Entry: short on a confirmed close below the lower trendline, or on a retest of the broken line.
• Stop: above the most recent swing high inside the megaphone.
• Target: the pattern's height projected down from the breakdown.
• Position size: reduce size to account for the wide stop - the expanded range means more dollars at risk per share.

Limitations and Pitfalls

The broadening top has a follow-through rate of only about 55%, which is barely better than a coin flip. Roughly 45% of the time, the pattern either breaks upward instead of down, or breaks down briefly and reverses. This makes it one of the least reliable patterns in the technical-analysis toolkit, and traders who size positions as if it were a high-probability setup will be disappointed.

The most common mistake is trading inside the megaphone. The widening swings look like opportunities - sell the top rail, buy the bottom rail - but the expanding range means each new swing can extend further than expected, stopping out counter-trend trades before they have a chance to work. The edge, such as it is, comes from the breakout, not from bouncing between the rails.

Another pitfall is anchoring on the pattern after multiple failures. Traders who watch a megaphone develop over weeks sometimes become emotionally invested in the bearish thesis and keep re-entering after being stopped out. Each failed attempt erodes capital and confidence. If the first breakdown attempt fails, step aside and wait for a new setup.

Finally, broadening tops are subjective. The expanding-range criteria can be applied loosely to many volatile consolidations that are not true megaphones. Drawing the trendlines requires at least five clean swing points; forcing the pattern onto three or four points produces low-quality signals.

Example

Imagine a stock that has rallied from $40 to $70 over four months. At $70, the advance becomes choppy. The stock swings from $70 to $64 (low 1), back to $73 (high 2), down to $61 (low 2), up to $76 (high 3), and then starts to roll over. Connecting the highs ($70, $73, $76) and the lows ($64, $61) gives two diverging trendlines - a classic megaphone.

The lower trendline projects to about $58 by the time the pattern resolves. The stock closes at $57.50 on above-average volume, breaking the lower trendline. The megaphone's height at its widest point is $76 - $61 = $15. The measured-move target is $58 - $15 = $43. A short entry at $57.50 with a stop above the recent high at $76.50 risks $19 per share for a $14.50 target - a reward-to-risk ratio below 1:1 at the textbook target. This illustrates why position sizing matters: the stop is wide, so the share count must be small.

Bottom Line

The broadening top is an honest pattern: it tells you the market is confused, and the outcome reflects that confusion. With only ~55% follow-through, it offers a slim edge at best. Its value is not in high-probability trading but in recognizing instability - when you see a megaphone forming, it is a warning that the trend is deteriorating and that volatility is about to expand. Trade the breakout small, with a wide stop and modest expectations, or simply use the pattern as context and wait for a cleaner setup elsewhere.