Chart patterns · Advanced

Diamond Top and Bottom Patterns

Swings that widen and then narrow, and four boundary lines that are four chances to draw your own preference.

Last reviewed 15 September 2026 by the MarketPro research desk · Editorial policy

In short

A diamond pattern is a broadening formation followed by a converging one, so price swings widen and then narrow again, producing a shape with points at both ends and a bulge in the middle. It typically appears after an extended trend and is treated as a reversal signal once price breaks decisively beyond the converging boundary. It is rare, and identifying the transition between the two phases is largely retrospective.

What to remember

Read it as two patterns in sequence. The expansion is a warning about volatility; the contraction is what gives you a tradeable trigger.
The converging half supplies the close stop, which is why a 23 dollar risk on gold is available where most reversal patterns demand far more.
A diamond needs four boundaries with two clean touches each, twice the construction burden of a triangle and four times the chance to fit lines to a bias.
A contraction after a volatile patch is often a continuation, and the diamond label presumes a reversal the shape does not promise.

Lesson 17 of 22 in Chart patterns

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A diamond is a broadening formation followed by a converging one: swings widen, then narrow again, producing a shape that bulges in the middle and comes to points at both ends. It is treated as a reversal pattern, it usually appears after an extended trend, and it is rare enough and subjective enough that the honest framing is two patterns in sequence rather than one pattern with a name.

The sequence, and what each half means

The two halves say different things, and reading them separately is more useful than reading the diamond as a unit.

The expansion. Swings widen. Opinion has become divided, volatility is rising, and the trend that got you here is no longer moving in an orderly way. On its own this is a warning about position size, nothing more.
The contraction. Swings narrow again. The disagreement has resolved into a balance and volatility is compressing, which is the state that precedes a directional move.

The combination is what gives the pattern its reversal reputation. A trend that first becomes disorderly and then goes quiet has usually stopped being a trend, and the contraction phase supplies something the expansion phase never does: a pair of converging lines that a break can be measured against.

A diamond top on gold, with numbers

Say gold has been rising and then starts swinging: a high at 2,395 and a low at 2,340, then 2,420 and 2,315, then 2,405 and 2,330, then 2,385 and 2,348, then 2,372 and 2,358. The widest point is 105 dollars (2,420 minus 2,315) and by the end the range is 14 dollars.

Price closes below the lower converging line at 2,356 and you enter at 2,355. Invalidation goes above the upper line at 2,378, which is 23 dollars of risk. The conventional objective projects the widest height from the break: 2,355 minus 105 is 2,250.

At the 0.01 lot minimum, where a one dollar move is worth one dollar, that is 23 dollars at risk for a 105 dollar objective. On a 2,500 dollar account, 23 dollars is inside a 1 percent budget, so the trade is available in a way that most gold reversal patterns are not. The reason is the contraction: a tight structure supplies a close invalidation level. Confirm your own figures on the position size calculator before you take the arithmetic on trust.

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Why most claimed diamonds are not diamonds

The pattern requires you to identify the moment the structure stopped expanding and began contracting. That moment is only obvious in retrospect, which creates a specific analytical trap: you see a broadening formation, wait for a contraction, and then draw four lines that make the whole thing look inevitable.

Two questions cut through it. Could you have marked the transition swing before the following swing confirmed it? And do all four lines have at least two clean touches each? A diamond needs four credible boundaries, which is twice the construction burden of a triangle and roughly four times the opportunity to fit lines to a preference. If either answer is no, what you have is a volatile stretch of chart followed by a triangle, which is still tradeable, just not under that name.

Rarity invites forcing, and four lines invite error

The contraction resumes the trend. A converging structure after a volatile patch is frequently a continuation, particularly if the larger trend is intact. The diamond label presumes reversal, and the shape does not.
The widest-point objective is generous. As with symmetrical triangles, measuring from the broadest part of a pattern always produces the largest possible target, and it is drawn from the least recent price action.
Rarity invites forcing. Because genuine diamonds are uncommon, the people who look for them tend to find them, which is a description of confirmation bias rather than of the market.
Four lines, four chances to be wrong. A break of one boundary while another was misdrawn is a false signal that looked rigorous.

Trade the contraction, read the expansion as context

Trade the second half and use the first half as context. The converging phase gives you a real entry trigger, a real invalidation level and a tight stop; the expanding phase tells you that the prior trend has lost its order and that volatility could return quickly, which argues for taking a first objective well short of the full projection.

Set the trigger at a close beyond the converging boundary, put the invalidation on the far side of the contraction, and size from that distance rather than from the ambition of the target. That order of operations, stop first and size second, is the habit that makes any low-frequency advanced pattern survivable, and it is the same one described in risk management. The same discipline applies to someone else's analysis, where the trigger, the invalidation and the objective arrive already chosen for you and still have to be checked against each other. How to read a forex signal sets out that check.

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Written and reviewed by the MarketPro research desk

MarketPro is a trading-signal and trading-education app operated by Harajuku Holdings LTD (Cyprus). Our signal desk publishes and tracks every trade idea in-app, and every page here is checked against the app's live behaviour before publishing. Last reviewed 15 September 2026. How we produce signals and content · About MarketPro

FAQ

Diamond Top and Bottom Patterns: questions

Is a diamond pattern bullish or bearish?

It depends on which end of a trend it forms at. A diamond top forms after an advance and is traditionally read as a bearish reversal once price breaks below the lower converging boundary, while the rarer diamond bottom forms after a decline and is read as bullish on a break above the upper boundary. In both cases the break, not the shape, is the signal.

How rare is the diamond pattern?

Considerably rarer than triangles, flags or double tops, because it requires both an expanding phase and a converging phase to develop cleanly and in that order. The rarity creates a practical hazard: traders who go looking for a scarce pattern tend to find it in charts that do not contain it. A useful test is whether you could have marked the transition swing before the swing that followed it confirmed the change.

How do you set a target on a diamond pattern?

The conventional method projects the height at the widest point of the pattern from the breakout point, so a 105 dollar widest range breaking at 2,355 projects to about 2,250. That convention draws its number from the oldest and least relevant part of the structure, so it is the most generous reading available. Taking a first objective at the nearest structural level and treating the full projection as a stretch is a more durable plan.

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