Diamond
Chart PatternsA rare reversal pattern that looks like a diamond shape on the chart, formed by a broadening formation followed by a symmetrical triangle. It typically signals a trend reversal.
What Is a Diamond Pattern?
The diamond pattern is a relatively rare formation that resembles a diamond or rhombus on the chart. It forms when a Broadening Formation (expanding price swings) transitions into a Symmetrical Triangle (contracting swings). The result is a pattern where volatility first increases and then decreases, creating the diamond shape.
Bearish Diamond (Top)
When a diamond forms at the top of an Uptrend on EUR/USD, it signals a potential reversal. The price first swings wider (confusion at the top), then narrows (building pressure for the breakdown). A break below the lower-right boundary of the diamond confirms the bearish signal.
Bullish Diamond (Bottom)
At the bottom of a Downtrend, a diamond signals a bullish reversal. The expanding swings show panic selling followed by recovery, and the contracting swings show accumulation. A break above the upper-right boundary confirms the bullish reversal.
Target Calculation
Measure the height of the diamond (from its highest to lowest point) and project that distance from the breakout point. Because diamonds are rare and somewhat subjective to identify, exercise extra caution. Require a strong candle close outside the pattern before entering, and keep your stop inside the diamond's boundary. The pattern is most reliable on daily and weekly timeframes.
Related Terms
Head and Shoulders
A bearish reversal chart pattern with three peaks where the middle peak (head) is the highest and the two outer peaks (shoulders) are roughly equal. The neckline break confirms the reversal.
Broadening Formation
A chart pattern where price swings widen over time, forming diverging trendlines. It reflects increasing volatility and disagreement between buyers and sellers.
Wedge
A pattern with two converging trendlines that both slope in the same direction. A rising wedge is bearish, and a falling wedge is bullish, as price typically breaks against the wedge's slope.