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How to Draw Broadening Formation Pattern Correctly

This price action 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 trendlines. The broadening formation, as the name implies, is just the opposite. As the pattern in Figure 6.5 shows, the trendlines actually 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.

Figure 6.5 A broadening top. This type of expanding triangle usually occurs at major tops. It shows three successively higher peaks and two declining troughs. The violation of the second trough completes the pattern. This is an unusually difficult pattern to trade and fortunately is relatively rare. 
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