After the breakout, check the price remains above the VWMA signal line. The volume indicator shows an increasing buy volume. Bullish setup Entry When the scenarios above match your target asset chart, it signals a possible upcoming bullish pressure on the asset price.

Stop loss The reasonable stop loss level will be below the range of the Diamond bottom pattern. Take profit The initial profit target will be equal to the size of the pattern formation. Bearish trade setup When seeking selling opportunities, follow the guidelines below: Spot a Diamond top pattern near any resistance line or after an uptrend.

Wait till the pattern completes formation and breakout below. The price breaks below the pattern range check indicator readings. The price remains below the VWMA signal line. The volume indicator declares increasing sell pressure.

Bearish setup Entry When these conditions above match your target asset chart, it signals a possible upcoming declining pressure on the asset price. Stop loss The initial stop loss level will be above the last high within the Diamond top range. Take profit The initial profit target will be below the same distance below the breakout as the Diamond top formation size. How to manage risks?

Wait till complete breakout occurs above or below the Diamond shape. In this case, wait for the entire candle formation outside the pattern range. Check the readings from indicators carefully. Use proper trade and money management while using this trading method. For trade management, suppose the price reaches the range above or below the candlestick pattern size, and you want to continue the order as the market context is positive.

Check on fundamental data before entering any trade; avoid trading using this method during major fundamental news releases. Try using upper time frame charts or at least multi-time frame analysis. It will guide you to make more successful trading positions. Final thought Using the Diamond pattern for trading makes it simpler to identify trend reversal points and execute successful trades.

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This is usual information for when we want to target a take profit level. You should wait until the price penetrates and breakout from the diamond pattern before entering the trade. In this step, it is ideal to set an alert at the breakout area pictured below so you can be alerted to the recent price action. You should always wait for the price action to close before concluding your technical analysis! With the order level set, add the stop loss level at either of the following levels:.

As you can see that the trade broke out from the pattern and traded lower hitting our predicted take profit level. By using the trend line tool, we can draw this out and easily see the symmetry that confirms the diamond bottom pattern.

We find this range by measuring the distance between the high of the pattern and the low of the pattern like so:. Again, set an alert for this level so your attention is drawn to it once the price penetrates this level. With the analysis in place and breakout confirmed, the market hit the order level and executed the trade.

It is important that you understand what it takes to be successful and to achieve the level of trading skills necessary to succeed. Save my name, email, and website in this browser for the next time I comment.

Skip to content. Home Forex Trading Software Automating Forex Trading. The diamond pattern is one of the most popular patterns in trading. It is a very strong pattern, which can be used to trade both the long and short positions.

This pattern is not only useful in forex but also in: Commodities, Stocks, Indices, Cryptocurrencies In this article, we will take a look at the bullish and bearish Diamond patterns. These patterns are quite rare, but they are powerful. Are Diamond Chart Patterns Bullish or Bearish? To make things confusing, the answer is it can be BOTH. These patterns more commonly indicate a potential bearish reversal. Here is an example of the pattern: Bullish Diamond Bottom Pattern Diamond bottom patterns are when the chart formation appears at the bottom of a bearish trend.

These patterns more commonly indicate a potential bullish reversal. Here is an example of the chart formation: What Do Diamond Top Chart Patterns Mean?

When a bearish diamond top formation develops: the underlying reason is that sellers have entered the market in an aggressive way. So much so that they are able to pull back a bullish move swiftly, and create new lower lows.

Which gives a similar approach to what looks like a slanted head and shoulders pattern. We find this range by measuring the distance between the high of the pattern and the low of the pattern like so:. Again, set an alert for this level so your attention is drawn to it once the price penetrates this level.

With the analysis in place and breakout confirmed, the market hit the order level and executed the trade. It is important that you understand what it takes to be successful and to achieve the level of trading skills necessary to succeed.

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We will also discuss the most important rules of trading with this pattern and give you some tips on how to trade it. Diamond pattern trading is where a trader will use a specific chart pattern, that is shaped like a diamond shock!

They are named after the diamond shape formed when the lines connecting the price highs and lows form a diamond shape. A head-and-shoulders pattern is created by looking for a head, shoulder and two troughs or valleys that occur around the middle of the chart. So even if you see a head and shoulders pattern form — you can still use this analysis to potentially spot a diamond pattern. This pattern is often seen in conjunction with other chart patterns, such as an inverse head and shoulders formation.

It can also be seen in conjunction with other market indicators, such as the stochastic oscillator. The diamond pattern can be found in both the long and short term charts, which can be a reason why it is so popular. When it comes to diamond pattern trading, it serves as a powerful reversal tool as we will find out later on with the stats that back it up. The short answer is that there are no rules, no one way of reading a chart and no certain pattern will predict the future.

However, it is not uncommon for the trend to continue IF the market breakouts to the upside of the pattern. With that being said, it is not rare for the trend to continue IF the market breakouts to the downside of the formation. Before you learn how to trade them, you have to understand what these patterns mean and what drives them to appear. This will help you understand the underlying reason why the market moves in order to obtain a clearer analysis. A diamond top formation can be mistaken for a head and shoulders pattern due to the similarity of their shapes.

According to Tom Bulkowski mentioned here :. Now you know what it means when a diamond is discovered at the top of a trend, but what about the bottom of a downtrend?

This is where the market consolidates towards the bottom of its longer-term downtrend and the buyers look to take over. Thus creating new highs that break the market structure. Sometimes, an inverse head and shoulders pattern may form first. Once you have identified the bullish diamond pattern at the end of the downtrend, you can prepare an order to enter long.

We can do this by means the distance between the low of the pattern and the high of the pattern like so:. As you can see this gives us a potential breakout range of 34 pips to the downside. This is usual information for when we want to target a take profit level.

You should wait until the price penetrates and breakout from the diamond pattern before entering the trade. In this step, it is ideal to set an alert at the breakout area pictured below so you can be alerted to the recent price action. You should always wait for the price action to close before concluding your technical analysis! With the order level set, add the stop loss level at either of the following levels:.

As you can see that the trade broke out from the pattern and traded lower hitting our predicted take profit level. By using the trend line tool, we can draw this out and easily see the symmetry that confirms the diamond bottom pattern. We find this range by measuring the distance between the high of the pattern and the low of the pattern like so:. Again, set an alert for this level so your attention is drawn to it once the price penetrates this level.

With the analysis in place and breakout confirmed, the market hit the order level and executed the trade.

It is important that you understand what it takes to be successful and to achieve the level of trading skills necessary to succeed. Save my name, email, and website in this browser for the next time I comment. Skip to content. Home Forex Trading Software Automating Forex Trading.

The diamond pattern is one of the most popular patterns in trading. It is a very strong pattern, which can be used to trade both the long and short positions.

This pattern is not only useful in forex but also in: Commodities, Stocks, Indices, Cryptocurrencies In this article, we will take a look at the bullish and bearish Diamond patterns. These patterns are quite rare, but they are powerful. Are Diamond Chart Patterns Bullish or Bearish? To make things confusing, the answer is it can be BOTH. These patterns more commonly indicate a potential bearish reversal. Here is an example of the pattern: Bullish Diamond Bottom Pattern Diamond bottom patterns are when the chart formation appears at the bottom of a bearish trend.

These patterns more commonly indicate a potential bullish reversal. Here is an example of the chart formation: What Do Diamond Top Chart Patterns Mean? When a bearish diamond top formation develops: the underlying reason is that sellers have entered the market in an aggressive way. So much so that they are able to pull back a bullish move swiftly, and create new lower lows. Which gives a similar approach to what looks like a slanted head and shoulders pattern.

You can apply the opposite logic when you have identified a bearish diamond top formation. This gives this an edge with diamond pattern trading when looking for a selling opportunity. What Do Bullish Diamond Bottom Patterns Mean? The opposite to the diamond top formation is the diamond bottom pattern. We can do this by means the distance between the low of the pattern and the high of the pattern like so: As you can see this gives us a potential breakout range of 34 pips to the downside.

Step 3: Wait For a Breakout Confirmation You should wait until the price penetrates and breakout from the diamond pattern before entering the trade. Then finally, add the take profit level if you wish to. The take profit level for this set-up is the trading range we measured in Step 2. Add your orders to your pending order and wait until the market executes you. Your entry should be looking like this: The Results As you can see that the trade broke out from the pattern and traded lower hitting our predicted take profit level.

Step 1: Identify the Diamond Bottom Formation You can identify a diamond top pattern by the following criteria: Bottom of a bearish move that has consolidated 2x Lower lows matching the following 2x higher lows 2x higher highs that match the following 2x lower highs This is what you should look out for visually: By using the trend line tool, we can draw this out and easily see the symmetry that confirms the diamond bottom pattern.

You just have to connect the highs and the lows. Step 2: Plot the Breakout Move We find this range by measuring the distance between the high of the pattern and the low of the pattern like so: This shows us a potential breakout range of 21 pips to the upside.

This is the measurement we need so we can set a realistic take profit level. Step 3: Wait For a Breakout Confirmation Now you just wait until the breakout is confirmed before entering the trade. This is achieved by the breakout candlestick AKA the trigger. Lastly, add the take profit level. Your order placement should be like so: The Results : With the analysis in place and breakout confirmed, the market hit the order level and executed the trade.

Continued the bullish move higher and hit the take profit level netting 21 pips. Not bad eh? Conclusion: Diamond Pattern Trading In conclusion, the diamond pattern trading process is the same. The main difference is the trading range and take profit levels. By setting up the right level, you can profit from a breakout from a Diamond Pattern. If you are interested in becoming a successful trader: It is important that you understand what it takes to be successful and to achieve the level of trading skills necessary to succeed.

I hope you enjoyed this guide to diamond pattern trading. Happy trading! This article was originally published by Alphaexcapital. Read the original article here. Forex Trading with Robots: Do They Really Work?

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Next, we draw the resistance trend line from the left shoulder to the most recent higher high of the price action {line A}. To draw the lower trend line which is {line C} find out the most recent bottom tail and connect it to the left shoulder. Forex Brokers Reviews Binary Options Brokers Reviews Trading Software Forex VPS Trading Signals. The diamond pattern can be found in both the long and short term charts, which can be a reason why it is so popular. EVEN MORE NEWS.

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