Bitcoin’s megaphone pattern, explained: How to trade it

Key takeaways

• The Bitcoin megaphone pattern features at least two higher highs and two lower lows, forming an expanding structure.

• Connecting these highs and lows with trendlines creates a megaphone-like appearance, reflecting market instability.

• The formation signals heightened volatility, with price swings becoming more pronounced over time.

• Depending on the trend direction, the pattern can indicate potential breakouts either upward (bullish) or downward (bearish).

The megaphone pattern, also known as a broadening formation, is a technical analysis chart pattern that traders observe in various financial markets, including cryptocurrencies like Bitcoin. 

This pattern is characterized by its distinctive shape, resembling a megaphone or an expanding triangle, and signifies increasing volatility and market indecision. Here are its defining characteristics:

• Higher highs and lower lows: The pattern consists of at least two higher highs and two lower lows, forming an expanding structure. Each subsequent peak is higher than the previous one, and each trough is lower, creating diverging trendlines.

• Diverging trendlines: When trendlines are drawn connecting the higher highs and lower lows, they diverge, forming a broadening pattern that visually resembles a megaphone.

• Increased volatility: The formation of this pattern indicates heightened volatility as the price swings become more pronounced over time. This reflects a struggle between buyers and sellers, leading to wider price movements.

Did you know? Bitcoin megaphone trading differs from traditional megaphone trading in that no physical megaphones are involved in the process.

1. Bullish megaphone formation 

This variation of the pattern suggests a potential breakout to the upside.

• Initial uptrend: The price begins in an uptrend, reaching the first peak (point 1).

• First retracement: A pullback occurs, creating a lower low (point 2) that is still above the prior trend’s starting level.

• Higher high formation: The price rallies again, surpassing the previous high and forming a higher high (point 3).

• Lower low expansion: A more pronounced drop follows, leading to a lower low (point 4), extending the range of price fluctuations.

• Breakout and continuation: The price breaks above the resistance line (point 5), confirming a bullish breakout.

2. Bearish megaphone formation 

This version of the pattern signals a potential downside breakout.

• Initial downtrend: The price begins with a downward movement, setting an initial low (point 1).

• First retracement: A minor upward correction follows, forming a lower high (point 2).

• Lower low expansion: A new low forms (point 3), further widening the range.

• Higher high formation : The price spikes again but still struggles to hold above prior highs (point 4).

• Breakout and reversal: The price breaks below the support line (point 5), confirming a bearish breakout.

Did you know? A high-volume breakout from a megaphone pattern signals strong market conviction, confirming a real move. Low volume? It’s likely a fakeout, with the price reversing back. Remember, wait for a volume spike before entering.

Megaphone history in Bitcoin trading

The megaphone pattern, or broadening formation, has appeared at various pivotal moments in Bitcoin’s trading history:

1. The early days: 2013–2014

In Bitcoin’s (BTC) formative years, extreme volatility often produced broadening formations. During this period, traders noted megaphone patterns — often with a bearish tint — reflecting wild price swings as the market struggled to find balance. 

Although less documented then, these early examples have since become reference points for understanding how chaotic market conditions can manifest as megaphone formations.

2. The late 2017–early 2018 bearish formation

As Bitcoin surged toward its then-all-time high near $20,000 in late 2017, a bearish megaphone pattern appeared on daily charts. This formation, marked by diverging trendlines with higher highs and lower lows, signaled increasing indecision and mounting selling pressure. 

Many technical analysts viewed it as a warning sign of an impending reversal — a forecast that materialized with the dramatic correction experienced in early 2018.

3. The early 2021 bullish turn

In early 2021, as Bitcoin approached the $60,000 threshold, traders observed a bullish megaphone pattern forming on multiple timeframes. Characterized by a series of progressively higher highs and higher lows, this pattern indicated a period of heightened volatility combined with cautious optimism. 

The subsequent breakout confirmed a strong bullish momentum, reinforcing the pattern’s validity as a predictive tool in a maturing market.

Trading strategies for the megaphone pattern

In this section, we’ll explore a number of trading strategies compatible with the Megaphone pattern. 

1. Megaphone breakout trading 

Breakout megaphone pattern trading involves entering a trade when the price decisively breaks out of the pattern’s boundaries with strong volume…