Bearish MegaPhone Pattern

Bearish MegaPhone Pattern

What is a Megaphone pattern?

This pattern is known as megaphone pattern because of its megaphone shape like formation.

The occurrence of this pattern takes place when the market is unsettled and a commodity shows great movement with little direction.

It is also known as Broadening Wedge. A trend line which is drawn over the pivot highs and under the pivot lows forms this pattern.

Technique 1:

Bearish Megaphone pattern at Zinc

bearish

A Bearish Megaphone chart pattern has appeared at the Zinc in Daily charts.

The Megaphone is an influential reversal pattern that consists of three expanding resistance trend lines.

Normally, the pattern is broken after 5 touches of the Support trend lines.

Usually, the price tries to continue in bullish direction prior to the breakout.

Before breaking downwards, the price finishes only partial uptrend.

We can observe that, the price has started limited retracement and is now expected to break downward the portion of megaphone overall size.

Technique: 2

“Wait for the price to break below the lower support line”, as in the first example and then look to place a sell order on the retest of the support level (broken support is now resistance).

The stop loss would go above the new resistance area and the profit target would be the same as in the previous illustration.

The chart below indicates: the entry, stop loss and take

profit levels.

bearish

ES1 once the price breaks through the support and comes back up to test the old support level as resistance, the entry is made. Although a little bit higher than the old support level., the price finds resistance and the price starts to move back down.

SL2 The stop loss in placed above the resistance level at which the price reversed.

TP3 The profit target goes the same distance away as the back of the triangle, down from the entry.

Nutshell:

ü  A Megaphone pattern is comparatively an extraordinary pattern which occurs occasionally.

ü  Its appearance is adverse to that of a symmetrical triangle.

ü  Megaphone Top forms after a forceful lead in a commodity price which can withstand for weeks or maybe even a few months.

ü  When the commodity makes a sequence of higher highs and lower lows, the formation of a Megaphone Top takes place.

ü  Megaphone top comprises of – three ascending peaks and two descending troughs.

ü  When the prices fall below the lower low, it can be treated as an indication of the pattern being completed.

ü  At the time of the formation of this pattern, we can normally observe the increase or high in the trading volumes.

To find out the possible breakout and reversal when it occurs is not easy as the volume does not show up unusual.