The "Diamond" pattern (or "Diamond") is a relatively rare and complex chart pattern that can signal both trend continuation and reversal. It often occurs at the peaks of uptrends or at the bottoms of downtrends, as well as in the middle of a trend as a continuation pattern.
🎮 Pattern structure:
▪️ Expansion and contraction: the pattern starts with an expanding formation (higher highs and lower lows), resembling an expanding triangle. Then this formation transitions to a contracting one (descending highs and ascending lows), resembling a regular symmetric triangle.
▪️ Four trendlines: the diamond is formed by four trendlines that connect successive highs and lows, creating a shape similar to a diamond or rhombus.
▪️ Volume: volume is typically high in the early stages of formation (expansion) and decreases as the pattern contracts, then increases again during the breakout.
🤓 How to apply the "Diamond" pattern:
🔹 Identification: finding a "Diamond" can be challenging due to its complex structure. Look for an expansion phase followed by a contraction phase.
🔹 Breakout: the main trading signal is the breakout of one of the trendlines forming the diamond.
Breakout upwards - a buy signal.
Breakout downwards - a sell signal.
🔹 Profit target: the distance from the widest part of the diamond, projected from the breakout point in the direction of movement.
🧐 Application strategies:
🔸 Wait for the breakout: this is the safest strategy. Wait for a clear breakout of the diamond's resistance or support line.
🔸 Volume confirmation: always look for an increase in volume during a breakout. This significantly enhances the reliability of the signal.
🔸 Retest: price often returns to the broken trendline for a retest before continuing its movement. This can be an additional entry point or confirmation of the breakout.
👀 Identifying the type of Diamond:
▪️ Reversal diamond: most often found at the peaks (bearish) or bottoms (bullish) of a trend.
▪️ Continuation diamond: less commonly, it can appear in the middle of a trend, signaling a temporary pause before the main movement resumes.
✔️ Recommendations:
🔻 Patience: the "Diamond" is a pattern that requires patience. It is difficult to identify, and breakouts can be false.
🔻 Confirmation: always use additional indicators and price actions to confirm signals.
🔻 Stop-loss: place the stop-loss beyond the opposite side of the diamond or behind its key levels to limit potential losses.
☝️ Remember: the "Diamond" pattern reflects the struggle between buyers and sellers, which first expands and then contracts before one side prevails. Its correct interpretation requires experience and attention to detail.
