Diamond Patterns
Overview
Diamond patterns are relatively rare reversal formations that combine a broadening pattern followed by a symmetrical triangle, creating a diamond-shaped outline on the chart. They typically appear at market tops (diamond top) or, less commonly, at bottoms (diamond bottom). The pattern signals an exhaustion of trend momentum as volatility first expands then contracts before a decisive breakout.
Key Concepts
First half: expanding range (broadening formation). Second half: contracting range (symmetrical triangle). Overall shape resembles a diamond or rhombus. Volume tends to be irregular during formation and spikes on the breakout. More commonly a reversal pattern, though it can occasionally signal continuation.
Entry Signals
Enter on a confirmed breakout below support (diamond top) or above resistance (diamond bottom) with volume confirmation. Wait for a close outside the diamond boundary rather than trading intraday spikes. Look for momentum divergence during the formation to confirm exhaustion. The breakout direction sets the measured-move trade.
Exit Signals
Measured-move target equals the height of the diamond (widest vertical range) projected from the breakout point. Place stops inside the diamond on the opposite side. Trail stops using recent swing points once the breakout develops. Invalidation occurs if price reverses back into the diamond pattern.
Best Timeframes
4H, Daily, Weekly
Pro Tips
Diamond patterns are easy to miss because traders often focus only on the second half (which looks like a triangle). Drawing the left-side broadening portion is key to identifying the full pattern. Due to their rarity, always require strong volume confirmation on the breakout before committing to the trade.
More Topics in This Category
Measured Move Projections
Measured move projections use the length of a prior price swing to forecast the target of the next swing in the same direction. The technique assumes market symmetry — that the second leg of a move will approximate the distance of the first leg. Measured moves apply to impulse waves, corrective patterns, and chart pattern breakouts, providing objective price targets that remove subjectivity from exit planning.
Rising & Falling Wedges
Rising and falling wedges are converging trendline patterns where both support and resistance slope in the same direction. A rising wedge (both lines slope upward, converging) is typically bearish, while a falling wedge (both lines slope downward, converging) is typically bullish. Wedges differ from triangles because both trendlines slope in the same direction rather than converging symmetrically.
Cup & Handle
The cup and handle is a bullish continuation pattern resembling a teacup when viewed from the side. The cup forms as a rounded bottom with the left and right rims at approximately the same level, followed by a small downward-drifting consolidation (the handle). A breakout above the handle's resistance triggers the measured move, calculated from the bottom of the cup to the rim.
Rounding Bottom
The rounding bottom (also known as a saucer pattern) is a long-term bullish reversal formation characterised by a gradual, U-shaped transition from a downtrend to an uptrend. The pattern reflects a slow shift in sentiment from bearish to neutral to bullish, typically forming over weeks or months. A breakout above the pattern's resistance (the left rim level) confirms the reversal.