loading...
Rare but reliable. Broadening followed by contracting - a diamond shape at the top signals reversal.
The Diamond Top is a reversal pattern that forms at the top of an uptrend. Like its bullish counterpart, it combines a broadening formation followed by a symmetrical triangle, creating a diamond shape โ but this time at a peak.
The pattern marks the transition from euphoric volatility to contracting uncertainty at a top. The broadening left half shows increasingly wild swings as the uptrend becomes chaotic, followed by a contracting right half as the market exhausts itself. The resolution is typically a downside breakdown.
The Diamond Top charts the transition from euphoria to distribution. The left half broadens as the uptrend becomes increasingly volatile โ higher highs and lower lows alternate with growing intensity. This is the emotional peak where greed and fear are both extreme.
The right half contracts as the battle quiets down. Smart money is distributing (selling into rallies), and each bounce gets weaker while each dip finds slightly higher support. The market is transitioning from trending to topping.
The breakdown through the lower-right trendline confirms the reversal. Measured move targets use the widest point of the diamond projected downward from the breakdown.
Conservative: Enter short on a break below the diamond's lower trendline with volume.
Aggressive: Enter short when price shows weakness in the contracting phase.
Above the high of the diamond formation. A break above the pattern's peak invalidates the bearish signal.
Measured Move: Height of the diamond projected downward from the breakdown point. T1: Nearest support. T2: Full measured move. Diamond tops often lead to sharp declines.
Typically 1:2 or better. Similar to head and shoulders in reliability when properly identified.
Diamond Tops are distribution patterns โ they form as smart money exits positions while the crowd still oscillates between buying and selling. Edwards & Magee noted these often appear at significant market tops.
Rare but powerful. Forms when a broadening pattern transitions into a triangle. The breakdown is usually fast and decisive.
Go deeper with the Academy lesson. Learn advanced setups, volume confirmation, and real trade examples.
Join Academy โ