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Diamond Top Chart Pattern

Diamond Top

The diamond top and bottom pattern "<>" consists of a broadening pattern "<" where the price range increases in height from left to right followed by a triangle ">" where the price range shrinks in height from left to right. A diamond top is distinguished by the price trend increasing before the diamond formation; in contrast, a diamond bottom is distinguished by the price trend decreasing before the diamond formation. A breakout move upward occurs when price penetrates above the downward sloping resistance line (the top slope "\" of the triangle ">").

Diamond Bottom Chart Pattern

Diamond Bottom

A breakout move downward occurs when price penetrates below the upward sloping support line (the bottom slope "/"of the triangle ">").

Diamond Top Breakout Direction

Diagram shows the breakout direction of the diamond top stock chart pattern

Diamond Bottom Breakout Direction

Diagram shows the breakout direction of the diamond bottom bar chart pattern

Bulkowski's (2005) research states that the diamond top breaks downward 69% of the time and the diamond bottom breaks upward 69% of the time. The majority (58%) of diamond tops are preceded by "a steeply rising trend", which increases the likelihood of a break downward and a mirror of the prior upward price movement (i.e. 82% of the time the downward move will be at least the same percentage move as the upward price move leading to the diamond top) (Kirkpatrick & Dahlquist, 2010, p. 321). Bulkowski (2005) emphasizes that a diamond bottom with a breakout move downward is ranked as being one the best performing patterns.

Diamond Top Average Maximum Breakout Gains and Declines


Diamond Bottom Average Maximum Breakout Gains and Declines


The expected averaged maximum percentage price move before a 20% countertrend move of the diamond top pattern is 27% for an upward breakout and 21% for a downward breakout; whereas a diamond bottom pattern has an averaged maximum price move of 36% for an upward breakout and 21% for a downward breakout (Bulkowski, 2005).

Price Targets

Suggestions for trading the diamond top and bottom are given by Kirkpatrick & Dahlquist: the price target is usually the same as the distance price moved to reach the diamond pattern; however, if the price move after the breakout is sluggish, the position should be closed out or tight protective stops should be implemented (2010, p. 322). Bulkowski (2008) gives more precise breakout targets:

Diamond Bottom Upward Breakout Price Target: Breakout Price + ((Highest Peak of Diamond Pattern - Lowest Valley of Diamond Pattern) * 81%)
Diamond Bottom Downward Breakout Price Target: Breakout Price - ((Highest Peak of Diamond Pattern - Lowest Valley of Diamond Pattern) * 63%)
Diamond Top Upward Breakout Price Target: Breakout Price + ((Highest Peak of Diamond Pattern - Lowest Valley of Diamond Pattern) * 69%)
Diamond Top Downward Breakout Price Target: Breakout Price - ((Highest Peak of Diamond Pattern - Lowest Valley of Diamond Pattern) * 76%)

Diamond Top Chart Example

exchange traded fund chart of the diamond top pattern

The chart above of the Nasdaq 100 ETF (QQQ) illustrates a steep price climb crowned with a diamond top and then a sharp fall in prices. The broadening part of the pattern had three peaks creating the upward sloping resistance line and two valleys creating the downward sloping support line. Similarly, the triangle part of the pattern had three peaks creating the downward sloping resistance line and two valleys creating the points to create the upward supporting support line. Note, that if a trader were to use the price target of the distance of the prior up move subtracted from the breakout price, the trader would have missed out on gains unless they used a tight stop loss. However, if they used Bulkowski’s more conservative price target, the trader would have locked in a nice profit.

Diamond Bottom Chart Example

diamond bottom with an upward breakout on a stock chart

The chart above of Cisco Systems (CSCO) shows a very tight diamond bottom with an upward breakout. After a sharp two day price move downward, price range begins to expand creating the broadening pattern half of the diamond and then the price range begins to contract creating the triangle portion of the diamond. In this example, the price move downward distance added to the breakout price of the diamond bottom would have resulted in a successful trade.

Works Referenced

  1. Nison, S. (2003) The Candlestick Course. Hoboken: John Wiley & Sons.
  2. Nison, S. (1994) Beyond Candlesticks: New Japanese Charting Techniques Revealed. New York: John Wiley & Sons.
  3. Nison, S. (1991) Japanese Candlestick Charting Techniques. New York: New York Institute of Finance.
  4. Rhoads, R. (2008) Candlestick Charting For Dummies. Hoboken: Wiley Publishing.
  5. ThinkorSwim. (2011). ThinkorSwim Resource Center: Candlestick Patterns Library.
  6. The Pattern Site. (2005). Bulkowski's Diamond Bottoms . Retrieved June 1, 2012, from http://thepatternsite.com/diamondb.html
  7. The Pattern Site. (2005). Bulkowski's Diamond Tops . Retrieved June 1, 2012, from http://thepatternsite.com/diamondt.html