Diamond Reversal Chart Pattern
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Diamonds Chart Patterns Explained
The diamond chart pattern is a very rare and exceptional form of chart formation which looks same like the head and shoulder or an inverted head and shoulder pattern. It is a reversal pattern which appears in a V shape. The diamond patterns will not frequently occur in the market bottoms and it usually takes place during the major top. As these diamonds chart pattern executes as a variant of head and shoulders chart patterns, the traders have to withstand their desire for differentiating the top that resembles a diamond formation. The basic reason for avoiding this pattern is that, the diamonds chart pattern will evoke a break in the trend very sooner when compared to the head and shoulders chart formation.
Basically there are two types of diamond patterns: the diamond bottoms which are formed in bearish trends and the diamond tops which are formed in bullish trends. In both cases the pattern is formed by two juxtaposed symmetrical triangles.
Diamond Tops
-This formation indicates the shortness of buyers and therefore trader’s indecisiveness in the market. Also, this pattern reflects a growing volatility which will be gradually reduced towards the end of the diamond.
-The price oscillations are of greater amplitude and then begin to decrease which indicates a possible trend reversal. In this case the buyers start losing momentum.
Diamond Bottoms
-This formation indicates the shortness of sellers (the weakening of the sell force) and therefore trader’s indecisiveness in the market. Also, this pattern reflects a growing volatility which will be gradually reduced towards the end of the diamond.
-The price oscillations are of greater amplitude and then begin to decrease which indicates a possible trend reversal. In this case the sellers start losing momentum.
Diamond pattern main features
The early break in the signal will result in premature positioning. For evaluating the breakthrough prospective of this diamonds chart pattern, you need to calculate the distance within the high and lowest diamond point chart formation and add this distance to the breakthrough point. Usually, the appearances of a breakthrough in the diamond pattern is followed by a strong market movement in the direction of the breakout.Diamonds chart patterns is not often discussed by the traders, because this pattern is not frequently used in trading. But when this pattern appears the trader must be prepared for a possible change in the market trend. Traders who want to know how to use this pattern should be aware of the following tips before getting started.
The diamond patterns occur infrequently.
Statistics indicate that there are 3 times more diamond tops compared to diamond bottoms.
Sometimes is possible to see and inverted head and shoulders within the diamond bottoms or a normal head and shoulders within the diamond tops.
When the diamond is beginning to form, the formation resembles a widening of a symmetrical triangle pattern . However, the difference is that the diamond is a reversal pattern and the symmetrical triangle a continuation pattern.
Some traders don’t recommend to implement the diamonds chart pattern, as it is quite unusual and not often examined to give results in trading. As in all chart formations, the trading volume at the time of the breakage of the figure is essential to determine the reliability of the diamond pattern.
KEY TAKEAWAYS
Traders use price patterns such as pennants , flags, and double bottoms and tops to forecast profitable trading opportunities and explain market dynamics.
One useful price pattern in the currency markets is the bearish diamond top formation.
The diamond top signals impending shortfalls and retracements with accuracy and ease.
A diamond top can be located by isolating a head-and-shoulders formation and applying trendlines to the peaks and troughs.
Utilizing price oscillators with the price pattern can increase the accuracy of a trade by gauging price action momentum.
Conclusion
The Diamond pattern is a rare, but reliable chart pattern.
It looks like a rhombus on the chart. However, it could easily be mistaken for a head and shoulders pattern.
The diamond pattern has a reversal characteristic:
Bullish Diamond Pattern (Diamond Bottom)
Bearish Diamond Pattern (Diamond Top)
In stock trading, the bearish diamonds on the top of bullish trends are more common. The diamond bottoms are rare.
When you trade a bearish diamond chart pattern, you should comply with the following rules:
Confirm the diamond pattern by discovering relatively big trading volumes. Make sure the pattern is more horizontal, rather than vertical. If the shape is more vertical than horizontal, then you are probably looking at a head and shoulders chart pattern.
Sell when the price breaks the lower right side of the diamond.
Place a stop loss order above the last top inside the diamond shape on the chart.
Stay in the trade for a minimum bearish move equal to the size of the diamond pattern.
You can extend profits by simply adding a volume weighted moving average . When the price breaks the VWMA upwards after completing the minimum target, you should exit the trade. If the stock is known to be more volatile, use a bigger VWMA .
Thanks for your like and support...
The diamond chart pattern is a very rare and exceptional form of chart formation which looks same like the head and shoulder or an inverted head and shoulder pattern. It is a reversal pattern which appears in a V shape. The diamond patterns will not frequently occur in the market bottoms and it usually takes place during the major top. As these diamonds chart pattern executes as a variant of head and shoulders chart patterns, the traders have to withstand their desire for differentiating the top that resembles a diamond formation. The basic reason for avoiding this pattern is that, the diamonds chart pattern will evoke a break in the trend very sooner when compared to the head and shoulders chart formation.
Basically there are two types of diamond patterns: the diamond bottoms which are formed in bearish trends and the diamond tops which are formed in bullish trends. In both cases the pattern is formed by two juxtaposed symmetrical triangles.
Diamond Tops
-This formation indicates the shortness of buyers and therefore trader’s indecisiveness in the market. Also, this pattern reflects a growing volatility which will be gradually reduced towards the end of the diamond.
-The price oscillations are of greater amplitude and then begin to decrease which indicates a possible trend reversal. In this case the buyers start losing momentum.
Diamond Bottoms
-This formation indicates the shortness of sellers (the weakening of the sell force) and therefore trader’s indecisiveness in the market. Also, this pattern reflects a growing volatility which will be gradually reduced towards the end of the diamond.
-The price oscillations are of greater amplitude and then begin to decrease which indicates a possible trend reversal. In this case the sellers start losing momentum.
Diamond pattern main features
The early break in the signal will result in premature positioning. For evaluating the breakthrough prospective of this diamonds chart pattern, you need to calculate the distance within the high and lowest diamond point chart formation and add this distance to the breakthrough point. Usually, the appearances of a breakthrough in the diamond pattern is followed by a strong market movement in the direction of the breakout.Diamonds chart patterns is not often discussed by the traders, because this pattern is not frequently used in trading. But when this pattern appears the trader must be prepared for a possible change in the market trend. Traders who want to know how to use this pattern should be aware of the following tips before getting started.
The diamond patterns occur infrequently.
Statistics indicate that there are 3 times more diamond tops compared to diamond bottoms.
Sometimes is possible to see and inverted head and shoulders within the diamond bottoms or a normal head and shoulders within the diamond tops.
When the diamond is beginning to form, the formation resembles a widening of a symmetrical triangle pattern . However, the difference is that the diamond is a reversal pattern and the symmetrical triangle a continuation pattern.
Some traders don’t recommend to implement the diamonds chart pattern, as it is quite unusual and not often examined to give results in trading. As in all chart formations, the trading volume at the time of the breakage of the figure is essential to determine the reliability of the diamond pattern.
KEY TAKEAWAYS
Traders use price patterns such as pennants , flags, and double bottoms and tops to forecast profitable trading opportunities and explain market dynamics.
One useful price pattern in the currency markets is the bearish diamond top formation.
The diamond top signals impending shortfalls and retracements with accuracy and ease.
A diamond top can be located by isolating a head-and-shoulders formation and applying trendlines to the peaks and troughs.
Utilizing price oscillators with the price pattern can increase the accuracy of a trade by gauging price action momentum.
Conclusion
The Diamond pattern is a rare, but reliable chart pattern.
It looks like a rhombus on the chart. However, it could easily be mistaken for a head and shoulders pattern.
The diamond pattern has a reversal characteristic:
Bullish Diamond Pattern (Diamond Bottom)
Bearish Diamond Pattern (Diamond Top)
In stock trading, the bearish diamonds on the top of bullish trends are more common. The diamond bottoms are rare.
When you trade a bearish diamond chart pattern, you should comply with the following rules:
Confirm the diamond pattern by discovering relatively big trading volumes. Make sure the pattern is more horizontal, rather than vertical. If the shape is more vertical than horizontal, then you are probably looking at a head and shoulders chart pattern.
Sell when the price breaks the lower right side of the diamond.
Place a stop loss order above the last top inside the diamond shape on the chart.
Stay in the trade for a minimum bearish move equal to the size of the diamond pattern.
You can extend profits by simply adding a volume weighted moving average . When the price breaks the VWMA upwards after completing the minimum target, you should exit the trade. If the stock is known to be more volatile, use a bigger VWMA .
Thanks for your like and support...
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