Monday, September 2, 2013

Anatomy of the megaphone pattern (And pre-week update of interesting charts)

I would categorize the megaphone pattern into four different phases. 

1. The building phase

When the chart already has performed one or two spikes and seems to be preparing for another one. This is not a phase I trade as it is not at all certain that a bigger spike will follow but it is the phase that raises awareness of possible future spikes coming.

Here are some current examples of charts in the building phase:



2. The spiking phase

When the chart is spiking in a megaphone pattern. This is the most tradable phase since it can be expected that a spike when done in the context of the megaphone pattern is not sustainable for a long time.

Currently I can't find any chart in the spiking phase.

3. Coming down from a spike

When the chart is coming down from a previous spike in the megaphone pattern. This is a phase that when done right a position should already be taken. When the spike has come down sufficiently (a subject that needs further discussion) it is time to exit the position.

Here is a chart coming down from a spike:
INP (3X Reversed)

4. Testing a broken megaphone pattern trendline

A megaphone pattern has a usually concave support floor that acts as resistance once it gets broken. The is a second tradable opportunity in the megaphone pattern since that trendline has a high likelyhood to hold. These trandlines can also come at multiple levels.

Here are some charts that have broken the megaphone pattern trendlines and have either tested or are creeping up to test the trendline, or both.




It is possible for a chart to be in the last phase of a previous megaphone pattern while at the same time in one of the first phases of a new megaphone pattern. Once a trendline has been broken a new megaphone pattern can develop that still respects the previous megaphone patterns trendline.

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