A diamond pattern is used for detecting reversals. Once rightly identified, it is one of the most profitable patterns for using reversals for trading strategy.
Diamond chart formation is a rare chart pattern that looks similar to a head and shoulders pattern with a V-shaped neckline. Diamond chart patterns usually happen at market tops.
What is ‘diamond’ pattern?
A bearish diamond formation or diamond top is a technical analysis pattern that can be used to detect a reversal following an uptrend; however bullish diamond pattern or diamond bottom is used to detect a reversal following a downtrend.
This pattern occurs when a strong up trending price shows a flattening sideways movement over a prolonged period of time that forms a diamond shape.