Megaphone Pattern: The Professional Way To Trade (2023)

Megaphone Pattern: The Professional Way To Trade (2023)

The Megaphone pattern derives its name from its resemblance to a megaphone or loudspeaker. Just as loudspeakers amplify sound, this pattern has the potential to amplify profits for both bullish and bearish traders in the market.

However, it’s crucial to exercise caution and use this pattern professionally. When applied correctly, it can lead to success, but using it without expertise can result in failure. In this guide, we will provide a professional approach to identifying the Megaphone pattern and present various strategies for trading it effectively.

What is Megaphone Pattern?

Before we dive into the technical aspects of locating this pattern on the chart it is quite important to understand the concept of market structure.

Market (Forex, Stocks, Metal, Commodities) always stays in one of the following structure. There are different ways to put up the definition of these structure, however we will keep it simple here.

  1. Uptrend : The price value of the stock is moving up with the time (Bull Market).
  2. Downtrend : The value of the stock is moving down with the time (Bear Market).
  3. Range | Consolodation : The value of the stock is struck in some range.
Market Structure (Bull, Consolidation and Bear)

Definition of Higher High , Higher Low, Lower High & Lower Low

If you see the candlestick chart you will find the price does not follows a straight line or curve it is always an zigzag shape. This zigzag shape has a peculiar property which can be definied using high points and low point.

If the market is in Bull phase it will keep making higher highs and higher lows. Whereas in the bear market it will make the Lower highs and lower lows.

Market Highr Highs Vs Lower Highs

Hoping the above two terms are clear now we can use this terminologies to define the Megaphone pattern.

A Bull Megaphone pattern emerges when a bullish market phase is succeeded by a sequence of at least two higher highs and two lower lows. Conversely, a Bear Megaphone pattern takes shape when a bearish market phase is followed by a series of at least two lower highs and 2 lower lows.

Formally one can argue that this patten has 5 points as shown in the picture

Megaphone Pattern (Bull and Bear)

How to Identify a Highly Probable Megaphone Pattern?

It’s important to keep in mind that the description above represents a theoretical ideal, and in practical trading, such ideal scenarios are rarely encountered.

Therefore, it’s crucial to adapt the description to a more flexible and lenient interpretation, as depicted in the image below.

Real Life Megaphone Structure

The image above provides a real-life depiction of the Megaphone chart pattern in practical market scenarios. It’s important to carefully consider the text outlined in the image as it reflects the true nature of this pattern in real-world situations.

Conditions for the perfect scenario of the Megaphone chart pattern.

  1. Identify the uptrend
  2. Point 1 ,3 & 5 shall lie in above red zone as shown in the picture above.
  3. Point 2 & 4 shall lie in the below red zone as shown in the above picture.
  4. Entry length (Green Color) shall be smaller then the exit length (Blue Color)
  5. Examine the consistency in the number of candles between various points (1 to 2, 2 to 3, 3 to 4, and 4 to 5) on the chart. The intervals between these points should appear noticeable and not appear unusual or irregular.
  6. On step 4 to 5, as soon as the candle passes by the Pivot line you should see the increase in volume.
  7. Go four times the time-frame you have chosen. (i.e., if chosen time frame is 15 Minutes, go to 1 Hour time frame and look for the bullish structure)
  8. Look for the breakout from the above resistancea as drawn in the red color line.

Use the same criteria and adjust the points for the bear structure.

Megachart Pattern trading strategies

Breakout trades for megachart pattern

Stay tuned for the examples

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