What it means
A broadening formation (or megaphone pattern) is the inverse of a triangle — trendlines DIVERGE rather than converge. Each successive swing high is higher than the prior, each successive swing low is lower. Volume often elevated throughout. Typically forms at major tops, marking the final blow-off phase before a trend reversal. Three variants by slope direction; the 'right-angled broadening' is the most reliable.
Why it matters
Broadening formations indicate institutional disagreement and rising volatility — the classic late-cycle topping pattern. The 2000 dot-com top had a broadening formation on the Nasdaq. The 2007 housing top showed broadening characteristics on financials. Pattern signals 'positioning is unstable; trend reversal probability rising.'
How to use it
Hard to trade INSIDE the pattern (widening swings make stops difficult). Best traded on the eventual breakout: daily close beyond one of the trendlines with volume expansion. Target = widest part of the pattern projected from breakout. Until breakout, treat as 'trend is dying' and reduce trend-following exposure.
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