Diamond

A Diamond Pattern often shows a possible trend reversal. It starts wide, with price swings expanding, then transitions into narrower moves, forming a diamond shape. This pattern can appear at market tops or bottoms.

Bullish and bearish diamonds look very similar, I know. But they get more clear in context (especially when coming after big red or green candlesticks).

How to Identify

1. Broadening Start. Price swings out like a megaphone.

2. Converging End. The swings then tighten, creating a diamond shape.

3. Volume Changes. Volume may rise as the pattern develops, then spike near the breakout.

How to Use

• Entry. Watch for a clear break of the diamond’s boundary. If it forms near a top, a break downward can signal bearish momentum. Near a bottom, a break upward can hint at a bullish turn.

• Stop. Some place stops just outside the diamond’s final swing high or low.

• Target. Measure the diamond’s widest part and project that distance in the breakout direction.

Pro Tips

• This pattern can be rare, so confirm with other tools or indicators.

• Look at the longer trend context to see if this pattern aligns with a major reversal.

• Be cautious of whipsaw price action in the middle of the diamond.

Exercise

Scan old charts for a pattern that starts wide and narrows into a diamond shape. Mark the outer edges, note volume changes, then see where price broke out. Pretend to enter in that direction, placing a stop beyond the final swing. Move forward in your backtest to track the result. Repeat on multiple symbols to see how the pattern pans out.