Did you know about the forex patterns? If so, you’ll notice that many forex chart patterns occurred often. In other words, few are common, but most are not like megaphones. No doubt, ways get their name, and only the rarely-occurring designs are identified. This guide will discuss megaphone patterns and how you can trade these patterns.
What are megaphone patterns?
According to the definition of the megaphone, a chart pattern shows a widening channel of high and low levels. It’s also called the boarding formation, and the design contains two higher highs and two lower lows. Similarly, they’ve five types of swings, and some things are considered very good. The primary good thing about megaphone patterns is that you can use them as continuous and reversal patterns. In simple words, you can also create a channel by drawing upper and lower trendlines.
The primary types of megaphone patterns
Now we’re going to discuss the megaphone patterns. Megaphone patterns don’t have too many types, which makes them different from each other. But there are only two types of megaphone patterns available.
1. Bullish megaphone
The patterns appear to show something happened or a situation changed. The bullish megaphone appears when prices go above the channel. In other words, this pattern indicates that visitors’ prices are up. On the other hand, when the price isn’t controlled and breaks the upper level, you can take the trade at the fifth swing. These conditions of patterns change with time, which shows an alarming situation.
2. Bearish Megaphone
The bearish megaphone is used for a completely different purpose and shows the opposite because the bearish patterns appear when prices go below the main channel. Similarly, when prices break, the lower level presents the entry point according to the situation. In other words, both are used for their purposes.
How to discover the megaphone pattern in trading?
Megaphone patterns only appear sometimes, but on periods of high volatility even, sometimes, you don’t see on that time often. But if you have the megaphone, you have a powerful weapon because, at that time, you’ve higher or lower at the same.
As you already know megaphone has five different types of swings, and each one is bigger than what you’ve seen previously. But the fifth one is larger than all the others, and that’s where you’ll get the point of entering a trade.
These megaphone pattern trading are represented with the graph, and the picture you see below represents the bullish megaphone. You can see that the price made five swings and a few smaller ones that you’ve seen in the gaps. But as we already discussed the last one, the fifth is the largest among all others, and once the prices go up and break the channel, it presents a long entry point.
What megaphone pattern signs show the trader?
Now, you’ll get an idea about why patterns appear during times of high volatility. These patterns are primarily created to show progress or indicate an endless battle between the bulls and bears. Buyers are sellers working for their benefit, and both are excited to be the buy or sell trades. The buyers are looking to purchase those traders who appear at the top. Similarly, sellers want to save their selves from uncertain conditions and eagerly wait to sell their trade when volatility increases. It’s exciting to see the market environment that creates a battle for winning more profits between buyers and sellers. In other words, you can get the megaphone patterns to appear whenever these highs and lows are connected.
How can you trade a megaphone pattern?
You can only get directly into the trading if you have previous knowledge about trading a megaphone pattern. Before switching a megaphone pattern, you need to know that the megaphone comprises Fibonacci ratios. Each swing in the design has a fib ratio and a 1.27 to 1.62 extension ratio. You can have two trading opportunities because the megaphone pattern works continuously and reversal patterns both which is a good thing to consider. But you need to take care of placing the trader after the fifth swing because the prices would be different after the fifth swing.
I wonder if you get the idea of not letting me break it down into chunks so you’ll understand it better.
The main breakout strategy
If you want a megaphone trade breakout in continuation, you need to take the trade in the direction of the flight. Because it’s more about changing the approach to solve the issue, you can enter long positions whenever you feel prices are getting close outside the pattern. We showed the chart above that explains the complete breakout of the megaphone. The price creates the five swings, and after the last swing, which is longer than others, we got a clear entry point. But let me tell you, you can also set the take profit from the Fibonacci ratios.
On the other hand, whenever the fifth swing breaks the 3rd level of the swing. In other words, it creates a small range, and you can set TP at 2.618 or 3.618 from that range. In case of stop loss, you can place it at 50% of your total capacity.
Now for the next step, which is about applying the megaphone strategy. You’ll transparently see everything that appeared on the chart, which explains the whole breakout pattern. In simple words, you know that whenever prices reach the fifth trend, the price starts to retrace but continues with a bullish move. Now we’ll get the idea we’re set to enter the trade. We set the take profit using a Fib ratio of 2.618 and 3.618. In other words, the t two TPs are placed by us, and if someone wants to exit the position earlier, they can set it at 2.618. In other words, for SL, we used the 50% Fib level of the range between the 3rd and 5th swing. That’s how a breakout strategy works in the environment to give you an idea.
Megaphones are like clouds that only sometimes appear on the chart. Now you’ll get an idea about the megaphone patterns and how it works, and you may know about their effectiveness. Similarly, it would help if you had better ideas about the designs and you identified them at the right time. The best part is you can trade in both ways with this pattern, and the other thing is longer timeframe is also adequate for you.