Diamonds are patterns which are shaped like a diamond. They are formed at the top or bottom of a trend and are known as broadening patterns because the candlesticks contained within the pattern display multiple behaviours. In the first half of the pattern, the candles form lower lows and higher highs, while they form lower highs and higher lows in the second half of the pattern.
Diamonds are reversal patterns, and there are two varieties of the diamond pattern:
- Diamond top which is a bearish reversal pattern.
- Diamond bottom which is a bullish reversal pattern.
A study by trader Thomas Bulkowski on the diamond bottom showed that it leads to an upside breakout 69% of the time. The diamond pattern is shown below: