The Broadening Formation

This price pattern is an unusual variation of the triangle and is relatively rare. It is actually an inverted triangle or a triangle turned backwards. All of the triangular patterns examined so far show converging trend lines. The broadening formation, as the name implies, is just the opposite. As the trend lines diverge in the broadening formation, creating a picture that looks like an expanding triangle. It is also called a megaphone top.

The volume pattern also differs in this formation. In the other triangular patterns, volume tends to diminish as the price swings grow narrower. Just the opposite happens in the broadening formation. The volume tends to expand along with the wider price swings. This situation represents a market that is out of control and unusually emotional. Because this pattern also represents an unusual amount of public participation, it most often occurs at major market tops. The expanding pattern, therefore, is usually a bearish formation. It generally appears near the end of a major bull market.