After a rally to a new high, Broadening Top or Megaphone Top will decline to an intermediate support level. Then, a new rally on a higher volume level will occur before yet another decline. After a third rally to an even higher high, the pattern will eventually lead to a collapse. As you can see, this is one of the largest patterns of them all which means that there are many technical implications that affect the movements. By taking the breakout level and subtracting the height of the pattern, you can work out the measured target.
With an appearance like an inverted triangle, this pattern is actually quite rare. Widening price swings normally form the broadening formation as opposed to increasingly narrowing fluctuations in the price. With a triangle, the volume will normally contract but this is different in a broadening top pattern because volume will expand with prices. With this in mind, it becomes a volatile market.
Normally, the pattern will consist of three peaks with each one being higher than the last. Furthermore, a line connecting the lows will show the price formation and its unique pattern.
As we mentioned earlier, there is a combination of increasing volume and wide price swings which represents a wildly fluctuating market. Rarely are these patterns found at market bottoms but instead, market tops.
When the prices finally fall below the lower low, it shows that the market has topped. Although prices may test the highs in the future, they don’t normally go above and beyond this level. Although we said that the peaks get successively higher, there may be occasions where the third peak doesn’t challenge the second before the second decline - this is a sign that the market is topping.
Once the violation of the second low occurs, the broadening top pattern is considered ‘complete’.