What it is
The Diamond Bottom is a reversal pattern that forms at the end of a downtrend. It combines a broadening formation (expanding swings) followed by a symmetrical triangle (contracting swings), creating a diamond-shaped outline.
The pattern represents the transition from chaos to order at a market bottom. First, selling creates increasingly volatile swings (the broadening left half). Then, as exhaustion sets in, the swings contract (the symmetrical right half). The resolution is typically an upside breakout.
The psychology
The Diamond Bottom charts the emotional journey from panic to calm. The left half broadens as selling intensifies — each swing is more extreme, marking capitulation and maximum fear. Volatility peaks.
Then a shift occurs. The swings start narrowing on the right side. Selling exhaustion sets in, buyers begin absorbing supply, and the market transitions from chaotic to orderly. The contracting range shows that a new equilibrium is forming at the lows.
The upside breakout from the diamond signals that the transition is complete — supply is exhausted and demand is gaining control. Measured move targets use the widest point of the diamond projected upward from the breakout.
Identification
- 01Prior downtrend — Must form after a decline
- 02Broadening left half — Expanding highs and lows (at least 2 swings)
- 03Contracting right half — Narrowing highs and lows forming a symmetrical triangle
- 04Diamond shape — Four trendlines creating a clear diamond outline
- 05Upside breakout — Price breaks above the upper-right trendline
- 01Volume declines through the right half as volatility contracts
- 02Volume expansion on breakout — Confirms real buying interest
- 03Pattern forms at major support — Fibonacci level, horizontal support
- 04Bullish divergence on RSI during the right half
- 01No clear diamond shape — Need four distinct trendlines
- 02Breakdown instead of breakout — Diamond breaks downward (continuation)
- 03Too few swing points — Needs enough touches on all four trendlines
- 04No prior downtrend — Pattern needs bearish context
Execution framework
Conservative: Enter long on a break above the diamond's upper trendline with volume.
Aggressive: Enter long when price shows strength in the contracting phase.
Below the low of the diamond formation. If price breaks below the pattern's lowest point, the bullish reversal is invalidated.
Measured Move: Height of the diamond (widest point) projected upward from the breakout. T1: 50-75% of measured move. T2: Full projection. Diamond bottoms are rare but powerful.
Typically 1:2 or better. The well-defined structure creates clear invalidation levels.
Context matters
Diamond Bottoms are relatively rare and can be tricky to identify in real-time. They're most reliable on daily or weekly charts and are often only recognized after the right half starts forming. The broadening-to-contracting sequence is the key identifier.
- 01At the end of a prolonged downtrend
- 02At major horizontal support or Fibonacci levels
- 03Clear four-trendline diamond shape
- 04Volume declines during right half, expands on breakout
- 05On daily or weekly charts
- 06Bullish divergence on RSI or MACD
- 01In a sideways market without trend context
- 02Too few swing points for clear trendlines
- 03On low timeframes where the pattern is noisy
- 04Without volume confirmation
- 05Asymmetric shape (not a clear diamond)
- 06If higher timeframe trend is strongly bearish
Even rarer than diamond tops. If you spot one forming, the breakout from the right side of the diamond is high-probability.
Compare the full pattern set
Use the library to compare similar structures before deciding what the chart is actually building.