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
Head & Shoulders
The head and shoulders is one of the most reliable reversal patterns in technical analysis. It consists of three peaks — a higher central peak (the head) flanked by two lower peaks (the shoulders) — connected by a neckline drawn across the reaction lows. A break below the neckline confirms the reversal, with the measured target equal to the distance from the head to the neckline projected downward from the breakout point.
Double Top & Double Bottom
Double tops and double bottoms are two-touch reversal patterns that form when price tests the same level twice and fails to break through. A double top signals bearish reversal after an uptrend, while a double bottom signals bullish reversal after a downtrend. The pattern is confirmed when price breaks the support or resistance level formed between the two peaks or troughs.
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.
Pennants
Pennants are short-term continuation patterns that form after a strong directional move. They resemble small symmetrical triangles, with converging trendlines creating a compact consolidation zone. Unlike flags, which have parallel channels, pennants converge to a point. The breakout typically occurs in the same direction as the preceding move, with the measured target based on the flagpole.