Technical analysis

Diamond Patterns: What They Are and How to Trade Them

Astron Team · 09/24/2026 · 4 min read

Some chart patterns show up every week on any asset's chart. Others are rare, but when they appear, they usually mark important trend changes. The diamond pattern falls into the second group: it isn't common, takes a bit more patience to identify, but tends to precede significant price reversals when confirmed correctly.

In this article, you'll understand how a diamond top and a diamond bottom form, what these formations reveal about the fight between buyers and sellers, and how to look for entry points with proper risk management.

What a diamond pattern is

The diamond pattern is a chart formation that, as the name suggests, resembles the outline of a rhombus when you draw lines connecting the candles' highs and lows. It emerges from combining two phases: first, an expansion phase, where the candles get progressively wider, with higher highs and lower lows; then, a contraction phase, where the highs start getting lower and the lows higher, until the price "closes" the diamond's right tip.

There are two variations: the diamond top, which appears at the end of an uptrend, and the diamond bottom, which appears at the end of a downtrend. In both cases, the diamond is rarely perfectly symmetrical — it's common to see it slightly tilted to one side.

Diamond top: how to identify it

The diamond top forms after a series of rallies. The typical sequence is: the price is rising, the candles start alternating highs and lows that get progressively farther apart (expansion phase), and then the gap between highs and lows shrinks again (contraction phase), forming the rhombus shape when you connect the extreme points.

The most used entry signal in this pattern arises when the price breaks below the support line connecting the diamond's lower-right side. This break is interpreted as confirmation the uptrend has lost strength and a downward reversal is underway. One important caution: the diamond top is often confused with the head and shoulders pattern, so it's worth carefully checking the full shape before deciding on the trade.

Diamond bottom: how to identify it

The diamond bottom is the mirror of the previous one and appears at the end of a downtrend. The expansion and contraction phases repeat the same way, but this time the price "enters" the diamond coming from above, after a series of declines.

Here, the most common entry signal is the breakout of the resistance line connecting the diamond's upper-right side, indicating buying strength reacting to the previous downtrend. If, instead, the price breaks below the diamond's lower part, the reversal scenario loses strength, and it makes more sense to look for another pattern than to insist on a reading the chart itself has already ruled out.

A numerical example

Imagine a stock trading at R$ 50.00 in an uptrend for weeks. Over a month, the price starts oscillating between highs of R$ 58.00 and lows of R$ 52.00 (expansion phase), and then that range narrows down to oscillating between R$ 55.00 and R$ 53.50 (contraction phase), drawing the diamond on the chart. When the price breaks below the R$ 53.50 level, which was the support at the shape's right tip, a trader following this pattern would consider that the diamond top's confirmation, with a logical stop placed a bit above the last high recorded within the diamond.

How to trade the pattern more safely

The diamond pattern works best when it appears after a clear, well-defined trend, not in the middle of a sideways, directionless market. Before considering an entry, it's worth checking whether the breakout came with increased traded volume, which reinforces the move's strength.

Like any chart pattern, the diamond doesn't guarantee being right. It organizes the reading of a possible reversal, but the trader still needs to define the position size and the stop before entering, never after. A common practice is always risking a small, fixed fraction of available capital on each trade, so a streak of mistakes doesn't wipe out the entire account.

Recognizing a diamond top or bottom can take time, since the formation draws itself out over several weeks, not just a few candles. Having the patience to wait for the breakout's confirmation, instead of jumping the entry as soon as the shape seems to be emerging, is what separates someone using this pattern with judgment from someone who just thinks they're seeing diamonds everywhere.