Web Trader MT5
A diamond is a technical analysis charting pattern that looks like the shape of a diamond or rhombus on a price chart. It is formed when the price first widens into a widening pattern, which is defined by higher highs and lower lows, and then narrows back into a converging pattern, establishing four different trend lines that create the diamond shape.
It is a reversal pattern and is most notable when it occurs after a long uptrend or decline. The spreading phase indicates that the disagreement and volatility between market players are increasing, while the narrowing phase indicates that the indecision is resolving itself.
A break below the lower barrier following an uptrend could foreshadow a move lower. A break of the upper barrier following a downtrend implies a probable move to the upside. Confirmed diamond patterns are not as common as triangles or flags, which is why traders take them carefully.
Example: A large stock index has a robust rally over several months, then begins to form a diamond pattern near the highs with increasing volatility, followed by constricting price movement.
Eventually, the price breaks below the lower border of the pattern on heavy volume and technically oriented traders take this as confirmation that the rally has exhausted itself, and start positioning for a more major pullback.
