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neutral Signal
Diamond
The diamond pattern combines a broadening formation (expanding phase) followed by a symmetrical triangle (contracting phase). Price first expands into higher highs and lower lows, then contracts back toward an apex. It is typically a reversal pattern and most commonly appears at market tops.
How to Trade
Enter when price breaks out of the diamond shape — above the upper right trendline (bullish) or below the lower right trendline (bearish). When forming at a market top, the bearish breakdown is more common. The profit target is the height of the widest part of the diamond projected in the breakout direction.
Market Psychology
The expanding phase reflects growing uncertainty and emotional extremes as market participants disagree violently. The contracting phase shows that the violent swings are fading as one side begins to gain control. The final breakout direction is the resolution of this tension — and it often surprises the majority who are expecting continuation of the prior trend.
Technical Diagram
This visual represents the ideal candle formation and breakout points for the Diamond pattern.
Key Characteristics
An initial expanding phase (higher highs, lower lows) forming the left half of the diamond
A subsequent contracting phase (lower highs, higher lows) forming the right half of the diamond
The pattern should have at least 6 alternating swing points (3 highs and 3 lows)
The widest point of the diamond defines the pattern's height for measured move calculations
Volume is typically high and irregular in the expanding phase and declines in the contracting phase
Trading the Diamond
Entry Signals
Enter on a confirmed candle close outside the right-side trendlines — above the descending upper right line (long) or below the ascending lower right line (short). Because the diamond is a complex pattern, require both a candle close outside the boundary and elevated volume before entering. The prior trend context heavily influences which direction to favour.
Risk Management
Place the stop on the other side of the most recent swing within the diamond. Due to the complex nature of this pattern and the tendency for false starts, use a smaller initial position (0.5–1% of capital). The pattern is invalidated if price swings back through the widest point of the diamond after a breakout.
Profit Targets
Measure the maximum height of the diamond at its widest point (the center of the pattern). Project that distance in the breakout direction from the breakout point. Secondary targets are the prior swing highs (for upside breakouts) or swing lows (for downside breakouts) near the left edge of the pattern.
Timeframes
Diamond patterns are most commonly found and most meaningful on daily and weekly charts. They are relatively rare compared to simpler patterns and typically mark major turning points at significant highs or lows. On intraday charts, diamonds do appear but are harder to identify clearly and carry less analytical significance.
Volume Context
Volume is highest in the expanding (left) half of the diamond, reflecting the emotional and uncertain nature of that phase. As the pattern contracts in the right half, volume declines. A volume surge on the final breakout confirms the resolution of the pattern. Volume that remains high through the contracting phase is a warning sign that the pattern may not be forming correctly.
Historical Success Rate
Diamond patterns are relatively rare, making statistical analysis less robust than for common patterns. Available research suggests success rates of approximately 65–72% for well-formed diamonds when the breakout aligns with the prior trend context. They are most reliable as reversal patterns at major market highs, where the bearish breakdown rate is higher.
Common Mistakes to Avoid
Misidentifying the pattern — combining a broadening formation with a symmetrical triangle into a proper diamond requires clear, well-defined swing points on all four sides
Entering before the right-side trendlines are clearly established — the contracting phase must be visible before trading the pattern
Assuming the breakout will always be against the prior trend — while diamonds are commonly reversal patterns, continuation diamonds do occur
Ignoring volume — the volume signature (high in the left half, declining in the right half, surging on breakout) is essential for pattern validation
Using the pattern height from only one half — the measured move uses the maximum height at the widest point, not just the left or right half alone
Diamond — Frequently Asked Questions
What is a diamond chart pattern?
A diamond pattern is a complex technical formation combining an expanding phase (higher highs, lower lows) and a contracting phase (lower highs, higher lows). The shape resembles a diamond. It is typically a reversal pattern and most commonly forms at significant market tops before a downside breakout.
How do I trade a diamond pattern?
Wait for a confirmed candle close outside the right-side trendline of the diamond on elevated volume. If the pattern forms at a market high, favour the downside breakout. If at a market low, favour the upside breakout. The measured move target is the diamond's maximum height projected in the breakout direction.
Is a diamond pattern bullish or bearish?
The diamond is a neutral pattern that can break in either direction, but it has a slight bearish bias when forming at market tops after uptrends. Context matters — the direction of the prior trend and the position of the pattern (at a high or a low) are the most important factors in assessing the likely breakout direction.
How is a diamond pattern different from a broadening formation?
A broadening formation only has the expanding phase (diverging trendlines), while a diamond has both an expanding phase and a contracting phase, giving it the diamond shape. A broadening formation does not converge back to a point, while a diamond's right side contracts symmetrically.
