Today IronTrade’s specialists have prepared an article about several chart patterns that are very widely spread to identify reversals on a chart. These patterns are called Diamonds because they form a shape of a square diamond.

Top form

A diamond top formation does not occur very often. However, if you are lucky to see it, it might be a clear signal of a strong trend reversal. You can spot it when an upward trend begins flattening sideways.

How does a top diamond look like?

Usually, it is followed by this sequence:

1. The chart remains in an uptrend

2. It starts fluctuating with the tops aiming higher and the bottoms aiming lower

3. After this, the price action changes with the tops being lower and bottoms – higher

4. Usually, when tops and lows connect, they form a diamond-shaped figure. It may not be symmetrical. Very often, it is a bit tilted to the side.

When the price breaks through the bottom of the diamond from the right side, it is a signal to open a position. It means that the price will reverse soon. You can also try to take advantage of the price fluctuations inside the diamond before the price reverses there.

Please note that such a pattern can be easily confused with the head and shoulders formation, so carefully assess the patterns!

Bottom form

It is an opposite form of the diamond’s top pattern. It occurs after a strong downward movement.
When you see that the price drops into the diamond from above, the pattern is a bottom form. The diamond symbolizes the conflict between buyers and sellers, who push the price up and down correspondingly. Usually, such a pattern does not last too long, and when you see that the price breaks through the resistance line upwards, it is a signal to enter.

If the price breaks through the diamond bottoms downwards, then it is not this figure. Start looking for another pattern strategy. Anyway, your job here is to look for a diamond that will lead to a price reversal. It is not always easy. As a hint, you may look for the shape after a strong upward or downward trend with a widening price range.

Happy end

A diamond pattern may look complicated at first sight because it requires some experience to identify it. However, after you learn how to spot it, the result will not take long in coming. Please don’t forget about proper risk management, as no strategy guarantees 100% results. Try to identify such patterns on different currency pairs on IronTrade! You can open several charts in different windows to enhance your chances of finding them. Good luck.