LogoLogo
Return to StockChartsCharts & ToolsArticlesChartSchoolYour Dashboard
  • đź“‹ChartSchool
  • Table of Contents
    • Overview
      • Why Analyze Securities?
      • Technical Analysis
      • Fundamental Analysis
      • Random Walk vs. Non-Random Walk
      • Asset Allocation and Diversification
      • John Murphy's 10 Laws of Technical Trading
      • John Murphy's "Charting Made Easy" eBook
      • Technical Analysis 101
        • TA 101 – Part 1
        • TA 101 – Part 2
        • TA 101 – Part 3
        • TA 101 – Part 4
        • TA 101 – Part 5
        • TA 101 – Part 6
        • TA 101 – Part 7
        • TA 101 – Part 8
        • TA 101 – Part 9
        • TA 101 – Part 10
        • TA 101 – Part 11
        • TA 101 – Part 12
        • TA 101 – Part 13
        • TA 101 – Part 14
        • TA 101 – Part 15
        • TA 101 – Part 16
        • TA 101 – Part 17
      • Irrational Exuberance
      • Cognitive Biases
      • Arthur Hill on Goals, Style and Strategy
      • Arthur Hill on Moving Average Crossovers
      • Multicollinearity
      • "The Trader's Journal" by Gatis Roze
        • Stage 1: Money Management
        • Stage 2: Business of Investing
        • Stage 3: The Investor Self
        • Stage 4: Market Analysis
        • Stage 5: Routines
        • Stage 6: Stalking Your Trade
        • Stage 7: Buying
        • Stage 8: Monitoring Your Investments
        • Stage 9: Selling
        • Stage 10: Re-Examine, Refine, Re-Enhance
        • Additional Reading
      • Bob Farrell's 10 Rules
      • Richard Rhodes' Trading Rules
      • Donchian Trading Guidelines
      • Why and How To Use Correlation
    • Chart Analysis
      • What Are Charts?
      • Support & Resistance
      • Trend Lines
      • Gaps and Gap Analysis
      • Introduction to Chart Patterns
      • Chart Patterns
        • Broadening Top or Megaphone Top
        • Double Top Reversal
        • Double Bottom Reversal
        • Head and Shoulders Top
        • Head and Shoulders Bottom
        • Falling Wedge
        • Rising Wedge
        • Rounding Bottom
        • Triple Top Reversal
        • Triple Bottom Reversal
        • Bump and Run Reversal
        • Flag, Pennant
        • Symmetrical Triangle
        • Ascending Triangle
        • Descending Triangle
        • Rectangle
        • Price Channel
        • Measured Move—Bullish
        • Measured Move—Bearish
        • Cup With Handle
      • Chart Types
        • Arms CandleVolume
        • CandleVolume
        • Elder Impulse System
        • EquiVolume
        • Heikin-Ashi Candlesticks
        • Kagi Charts
        • Renko Charts
        • Three Line Break Charts
        • MarketCarpets
        • Relative Rotation Graphs (RRG Charts)
        • Seasonality Charts
        • Yield Curve
      • Candlestick Charts
        • Introduction to Candlesticks
        • Candlesticks and Traditional Chart Analysis
        • Candlesticks and Support
        • Candlesticks and Resistance
        • Candlestick Bullish Reversal Patterns
        • Candlestick Bearish Reversal Patterns
        • Candlestick Pattern Dictionary
      • Point and Figure Charts
        • Point and Figure Basics
          • Introduction to Point & Figure Charts
          • Point & Figure Scaling and Timeframes
          • P&F Trend Lines
        • Classic Patterns
          • P&F Bullish Breakouts
          • P&F Bearish Breakdowns
          • P&F Signal Reversed
          • P&F Catapults
          • P&F Triangles
          • P&F Bull & Bear Traps
        • P&F Price Objectives
          • P&F Price Objectives: Breakout and Reversal Method
          • P&F Price Objectives: Horizontal Counts
          • P&F Price Objectives: Vertical Counts
        • Point & Figure Indicators
        • P&F Scans and Alerts
          • P&F Pattern Alerts
      • Chart Annotation Tools
        • Andrews' Pitchfork
        • Stock Market Cycles
        • Fibonacci Retracements
        • Fibonacci Arcs
        • Fibonacci Fans
        • Fibonacci Time Zones
        • Quadrant Lines
        • Raff Regression Channel
        • Speed Resistance Lines
    • Technical Indicators & Overlays
      • Introduction to Technical Indicators and Oscillators
      • Technical Indicators
        • Accumulation/Distribution Line
        • Alligator Indicator
        • Aroon
        • Aroon Oscillator
        • ATR Bands
        • ATR Trailing Stops
        • Average Directional Index (ADX)
        • Average True Range (ATR) and Average True Range Percent (ATRP)
        • Balance of Power (BOP)
        • Bollinger BandWidth
        • %B Indicator
        • Chaikin Money Flow (CMF)
        • Chaikin Oscillator
        • Chande Trend Meter (CTM)
        • CMB Composite Index
        • Commodity Channel Index (CCI)
        • ConnorsRSI
        • Coppock Curve
        • Correlation Coefficient
        • DecisionPoint Price Momentum Oscillator (PMO)
        • Detrended Price Oscillator (DPO)
        • Distance From Highs
        • Distance From Lows
        • Distance To Highs
        • Distance To Lows
        • Distance From Moving Average
        • Ease of Movement (EMV)
        • Force Index
        • Gopalakrishnan Range Index
        • High Low Bands
        • High Minus Low
        • Highest High Value
        • Linear Regression R2
        • Lowest Low Value
        • Mass Index
        • MACD (Moving Average Convergence/Divergence) Oscillator
        • MACD-Histogram
        • MACD-V
        • MACD-V Histogram
        • Median Price
        • Money Flow Index (MFI)
        • Negative Volume Index (NVI)
        • On Balance Volume (OBV)
        • Percentage Price Oscillator (PPO)
        • Percentage Volume Oscillator (PVO)
        • Performance Spread
        • Price Relative/Relative Strength
        • Pring's Know Sure Thing (KST)
        • Pring's Special K
        • Rate of Change (ROC)
        • Relative Strength Index (RSI)
        • Relative Volume (RVOL)
        • RRG Relative Strength
        • StockCharts Technical Rank
        • Slope
        • Standard Deviation (Volatility)
        • Stochastic Oscillator (Fast, Slow, and Full)
        • StochRSI
        • Traffic Light
        • TRIX
        • True Range
        • True Strength Index
        • TTM Squeeze
        • Typical Price
        • Ulcer Index
        • Ultimate Oscillator
        • Vortex Indicator
        • Weighted Close
        • Williams %R
      • Technical Overlays
        • Anchored VWAP
        • Bollinger Bands
        • Chandelier Exit
        • Double Exponential Moving Average (DEMA)
        • Hull Moving Average (HMA)
        • Ichimoku Cloud
        • Kaufman's Adaptive Moving Average (KAMA)
        • Keltner Channels
        • Linear Regression Forecast
        • Linear Regression Intercept
        • Moving Averages—Simple and Exponential
        • Moving Average Ribbon
        • Moving Average Envelopes
        • Parabolic SAR
        • Pivot Points
        • Price Channels
        • Triple Exponential Moving Average (TEMA)
        • Volume-by-Price
        • Volume-Weighted Average Price (VWAP)
        • ZigZag
    • Market Indicators
      • Introduction to Market Indicators
        • Market Indicator Dictionary
      • Advance-Decline Line
      • Advance-Decline Percent
      • Advance-Decline Volume Line
      • Advance-Decline Volume Percent
      • Arms Index (TRIN)
      • Bullish Percent Index (BPI)
      • DecisionPoint Intermediate-Term Breadth Momentum Oscillator (ITBM)
      • DecisionPoint Intermediate-Term Volume Momentum Oscillator (ITVM)
      • DecisionPoint Swenlin Trading Oscillator (STO)
      • High-Low Index
      • High-Low Percent
      • McClellan Oscillator
      • McClellan Summation Index
      • Net New 52-Week Highs
      • Percent Above Moving Average
      • Pring's Bottom Fisher
      • Pring's Diffusion Indicators
      • Pring's Inflation and Deflation Indexes
      • Pring's Net New High Indicators
      • Put/Call Ratio
      • Record High Percent
      • Volatility Indices
    • Market Analysis
      • Dow Theory
      • Sector Rotation Analysis
      • Intermarket Analysis
      • The DecisionPoint Chart Gallery
      • DecisionPoint Rydex Asset Analysis
      • Wyckoff Analysis Articles
        • Wyckoff Market Analysis
        • Wyckoff Stock Analysis
        • The Wyckoff Method: A Tutorial
      • Elliott Wave Analysis Articles
        • Introduction to Elliott Wave Theory
        • Identifying Elliott Wave Patterns
        • Guidelines for Applying Elliott Wave Theory
    • Trading Strategies & Models
      • DecisionPoint Trend Model
      • Trading Strategies
        • Bollinger Band Squeeze
        • CCI Correction
        • CVR3 VIX Market Timing
        • Faber's Sector Rotation Trading Strategy
        • Gap Trading Strategies
        • Harmonic Patterns
        • Hindenburg Omen
        • Ichimoku Cloud Trading Strategies
        • The 'Last' Stochastic Technique
        • MACD Zero-Line Crosses With Swing Points
        • Moving Average Trading Strategies
          • Finding Support and Resistance in Moving Averages
          • Guppy Multiple Moving Average: An MA Ribbon Designed to Tip the Market’s Hand
          • How To Trade Price-to-Moving Average Crossovers
          • Trading the Bounce: Finding Support and Resistance in Moving Averages
          • Trading the Death Cross
          • Trading Using the Golden Cross
          • Using the 5-8-13 EMA Crossover for Short-Term Trades
        • Moving Momentum
        • Narrow Range Day NR7
        • Percent Above 50-day SMA
        • Percent B Money Flow
        • The Pre-Holiday Effect
        • RSI(2)
        • Six-Month Cycle MACD
        • Slope Performance Trend
        • Stochastic Pop and Drop
        • Swing Charting
        • Trend Quantification and Asset Allocation
    • Index & Market Indicator Catalog
      • Advance-Decline Indicators
      • Cboe Indices and Indicators
      • CME Futures and Spot Prices
      • DecisionPoint Sentiment Indicators
      • Dow Jones Breadth Indicators
      • Dow Jones Global Indices
      • Dow Jones Select Indices
      • Dow Jones Titans Indices
      • Dow Jones US Indices
      • Economic Indicators
      • ICE Futures and Spot Prices
      • Intellidex Indices
      • MSCI Indices
      • New 52-week Highs and Lows for Exchanges
      • NYSE Arca Equity Indices
      • NYSE Equity Indices
      • Philadelphia Indices
      • S&P 500 Sector and Industry Groups
      • S&P GSCI Indices
      • StockCharts AD Percent
      • StockCharts AD Volume Percent
      • StockCharts Bullish Percent Index
      • StockCharts High-Low Index
      • StockCharts High-Low Percent
      • StockCharts Percent Above Moving Average
      • StockCharts Pseudo Symbols
      • StockCharts Record High Percent
      • StockCharts Theoretical Indices
      • US Treasury Yields
    • đź“–Glossary
      • đź“–Glossary - A
      • đź“–Glossary - B
      • đź“–Glossary - C
      • đź“–Glossary - D
      • đź“–Glossary - E
      • đź“–Glossary - F
      • đź“–Glossary - G
      • đź“–Glossary - H
      • đź“–Glossary - I
      • đź“–Glossary - J
      • đź“–Glossary - K
      • đź“–Glossary - L
      • đź“–Glossary - M
      • đź“–Glossary - N
      • đź“–Glossary - O
      • đź“–Glossary - P
      • đź“–Glossary - Q
      • đź“–Glossary - R
      • đź“–Glossary - S
      • đź“–Glossary - T
      • đź“–Glossary - U
      • đź“–Glossary - V
      • đź“–Glossary - W
      • đź“–Glossary - X, Y, Z
    • Options Glossary
    • Educational Resources
Powered by GitBook
LogoLogo

ON STOCKCHARTS

  • Charts & Tools
  • Articles
  • StockCharts TV
  • ChartSchool

MEMBERS

  • Your Dashboard
  • Your ChartLists
  • Advanced Scans
  • Technical Alerts

HELP

  • Support Center
  • FAQs
  • Contact Us
  • Pricing

COMPANY

  • About Us
  • What's New
  • Careers
  • StockCharts Store

© StockCharts.com, Inc. All Rights Reserved.

On this page
  • What Is a Broadening Top?
  • What Does the Broadening Top Indicate?
  • Are Broadening Tops Bearish or Bullish?
  • How Do You Trade a Broadening Top?
  • The Bottom Line

Was this helpful?

Export as PDF
  1. Table of Contents
  2. Chart Analysis
  3. Chart Patterns

Broadening Top or Megaphone Top

What Is a Broadening Top?

A broadening top is a chart pattern characterized by successive higher peaks and lower valleys. If you were to draw a trendline across the top and bottom of the price action, the pattern would resemble a megaphone or a reverse triangle.

What Does the Broadening Top Indicate?

Perhaps the most reliable indication that any broadening formation tells us—whether it’s a Broadening Top or a Broadening Bottom—is that there’s a volatile disagreement between bullish and bearish investors.

Bullish investors are bidding prices higher, while bearish investors sell (or sell short) the stock, causing it to fall. As a result, you see a series of consecutive higher highs (HHs) and lower lows (LLs).

Are Broadening Tops Bearish or Bullish?

While many long-term investors consider broadening tops to be bearish, as volatility and uncertainty tend to be bearish, the historical performance of this pattern makes it much less discernible:

  • Its historical performance as a bearish or bullish pattern is poor, as it tends to pull back into the pattern range over 60% of the time (meaning, if you trade the breakout, it will likely pull back in the opposite direction of your trade).

  • For a “topping” formation, its historical statistics tell us that it often tends to rise more than it falls, making it more of a continuation pattern than a reversal pattern.

  • Still, the pattern is tradable, but given its volatile characteristics, you might expect it to exhibit wide fluctuations (post-breakout) even if it eventually reaches your profit target.

How Do You Identify Broadening Tops? There are a couple of key characteristics to pay attention to when identifying a Broadening Top:

  • Number of Touches. There should be at least five touches in total. Three of these can be peaks or valleys that touch the associated trend line. Two or more touches should be of the other trendline. Bear in mind that a “touch” is different from an “approach” that comes close to the trend line but doesn’t touch. Ideally, the second touch should make contact with the trend line.

  • Filled Spaces. Prices should cross the pattern from one side to the other, filling the area with price movement. In short, there shouldn’t be wide “white spaces” in the pattern showing a lack of price activity.

  • Breakout Direction. A breakout can occur in any direction and happens when the price pierces a trendline or moves above/below the height of the formation.

How Do You Trade a Broadening Top?

One of the most common approaches to trading a Broadening Top would be to buy an upward breakout or sell a downward breakout.

  1. Compute the height of the pattern. Calculate the difference between the highest peak and the lowest valley. This gives you the “height” of the pattern.

  2. If the breakout is to the upside. Add the pattern's height to the top of the formation to get your potential price target. You can take profits when price reaches 100% of the pattern’s height or close to it.

  3. If the breakout is to the downside. Subtract the height of the pattern from the bottom of the pattern to get your potential price target. You can take profits when price reaches 100% of the pattern’s height.

  4. Place a stop loss at the opposite end of the pattern. In short, place it at the opposite swing high or swing low, depending on whether you’re going long or short.

  5. Beware pullbacks. Once you open your position (long or short), prices tend to pull back into the pattern range over 60% of the time, meaning it will likely go beyond your entry point and in the opposite direction.

Warning. Swing traders may take the opposite direction within the formation (going long or short within the five-touch sequence). While this presents a tradable opportunity, it is a high-risk strategy, so proceed cautiously. What Other Indicators Might Help Me Trade a Broadening Top? The short answer: any indicator that can help you identify overbought and oversold levels. This includes the Relative Strength Index, Stochastic Oscillator, Bollinger Bands, and others.

Also, remember important support and resistance areas, which can be significant historical levels or projected levels such as those that Fibonacci Retracements can determine.

You will also want to pay attention to various volume indicators that can give you insight into buying and selling pressure (such as the Chaikin Money Flow) or the strength and momentum of a breakout (such as the Rate of Change).

IMPORTANT. Broadening formations (like Broadening Tops and Broadening Bottoms) often result from disagreements between market participants. These disagreements are usually fundamentally based and stem from broader economic (and sometimes political) risk perceptions. While you can trade them on a technical level, it might help you to be fully aware of the economic (or political) context driving the broader market.

The Bottom Line

A Broadening Top is a unique chart pattern resembling a reverse triangle or megaphone that signals significant volatility and disagreement between bullish and bearish investors. Though often seen as bearish due to its volatility and uncertainty, its historical performance makes it ambiguous.

Given the pattern's tendency for pullbacks, it's best to approach this pattern with prudence and a solid understanding of your risk tolerance. Additionally, while several technical indicators can aid in trading Broadening Tops, understanding the broader economic or political landscapes influencing the pattern can offer invaluable insights. In short, while the Broadening Top presents a trading opportunity, it's a pattern that demands both technical acumen and a finger on the pulse of the larger market narrative.

PreviousChart PatternsNextDouble Top Reversal

Last updated 11 months ago

Was this helpful?

Illustration of broadening top or megaphone top pattern.
Illustration of a broadening top chart pattern.