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A diamond bottom is a bullish reversal chart pattern.
It appears after a downtrend and can signal that prices will start rising again.
How do you recognise it?
There are four things to look for when identifying a diamond bottom on a chart:
- A downtrend before the pattern appears
- In the first half, higher highs and lower lows, widening the price range
- In the second half, lower highs and higher lows, narrowing the pattern into a diamond
- A break above the upper boundary, confirming the signal
How do you trade a diamond bottom?
The buy signal appears when price breaks above the diamond's upper boundary.
You can enter at that point, once the breakout is confirmed.
The stop-loss can go below the diamond's central low.
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Calculate the price target by projecting the diamond's height upwards from the breakout point.
Measure the pattern's maximum height, then add that distance to the breakout level.
How is it different from a diamond top?
A diamond top appears after a rise and is confirmed by a downward breakout.
A diamond bottom appears after a decline and is confirmed by an upward breakout.
