What is a Diamond Pattern Chart? With Examples

A Diamond Pattern is when price action creates higher highs and lower lows in a broadening pattern. It then starts to narrow after its high peak and the low start trending upward.

Diamond patterns usually forms over several months or weeks during an active market.

Here’s an example of Netflix ($NFLX) after a nasty drop-off from earnings.

Netflix started to form this pattern from April 2022 and finished near the end of July 2022–that’s a three month process!

Diamond patterns are rare because of how long it takes to form, but they are some of the most reliable chart patterns.

Are Diamond Chart Patterns Bullish or Bearish?

Diamond patterns can be both bullish, and bearish.

Bullish Diamond patterns are known as Diamond Bottom.

Diamond Bottom patterns start forming after a downward trend, and it starts to signal a possible reversal to the upside.

The Netflix example, is a diamond bottom pattern.

A bearish diamond pattern is known as a Diamond Top.

Diamond Top patterns start forming after an upward trend, and it starts to signal a possible reversal to the downside.

How to Trade a Diamond Pattern

Once the Diamond pattern has been identify, you want to play the breakout of the trend lines.

Let’s look at the Netflix ($NFLX) diamond bottom example.

In the example above, the price action that broke the diamond bottom pattern to the upside was $184.91. Once the stock went above that price, that’s when you enter your trade.

The same would be for a diamond top pattern. Since it’s a bearish pattern, you’ll look for price movement to the downside.

Can Diamond Patterns be a Continuation?

Yes, Diamond patterns can be a continuation from a bearish or bullish trend.

A Diamond Top pattern is typically a bearish signal, but it can most certainly continue to the upside.

A Diamond Bottom pattern is typically a bullish signal, but it can most certainly continue to the downside.