What it is
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 — 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 psychology
The Diamond Top charts the transition from euphoria to distribution. The left half broadens as the uptrend becomes increasingly volatile — 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.
Identification
- 01Prior uptrend — Must form after a rise
- 02Broadening left half — Expanding highs and lows
- 03Contracting right half — Narrowing range forming symmetrical triangle
- 04Diamond shape — Four trendlines creating a clear diamond
- 05Downside breakdown — Price breaks below the lower-right trendline
- 01Volume declines through the right half
- 02Volume expansion on breakdown — Confirms real selling pressure
- 03Pattern forms at major resistance — Prior highs, Fibonacci extensions
- 04Bearish divergence on RSI during the right half
- 01No clear diamond shape — Need four distinct trendlines
- 02Breakout upward — Diamond breaks up (continuation)
- 03Too few swing points — Needs enough touches
- 04No prior uptrend — Pattern needs bullish context
Execution framework
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.
Context matters
Diamond Tops are distribution patterns — 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.
- 01At the top of a prolonged uptrend
- 02At all-time highs or major resistance
- 03Clear four-trendline diamond shape
- 04Volume declines through right half
- 05On daily or weekly charts
- 06Bearish divergence on RSI
- 01In a sideways market
- 02Too few swing points
- 03On low timeframes
- 04Without volume confirmation
- 05Asymmetric shape
- 06If higher timeframe is strongly bullish
Rare but powerful. Forms when a broadening pattern transitions into a triangle. The breakdown is usually fast and decisive.
Compare the full pattern set
Use the library to compare similar structures before deciding what the chart is actually building.