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dIAMOND BOTTOM AND DIAMOND TOP

Diamond bottoms and diamond tops – price action mastery

Diamond bottoms

diamond bottom

Trend

The Diamond bottom patterns gives a upward breakout . It is a bullish pattern. Generally a reversal occurs at the end of a downtrend. Once the price breakout’s it gives a good bullish momentum.

Identification guidelines

  1. Forms at the end of a downtrend. 
  2. Prices form higher highs and lower lows in the first part of the
    pattern
  3. Then lower highs and higher lows.
  4. Trend lines surrounding the price action look like a diamond.
  5. The diamond need not appear symmetrical.
  6. The wider the pattern the better.

Breakout Identification

  1. Volume goes up at the time of breakout.
  2. Breakout day volume is high.
  3. Breakout can be upward or downward so wait for the breakout.
  4. Calculating Target price – Measure the diamond height from the highest high to the lowest low and then add the result to the breakout price if the breakout is upward. result is the target price.
  5. Subtract the result from the breakout price for downward breakouts. The result is the target price. 

Stoploss

A safe stop loss is below the High/low of the pattern. A risky trader can set stop loss below the middle of the pattern. 

Trading a diamond bottom.

diamond bottom

Diamond top

diamond top

trend

The Diamond top patterns gives a downward breakout . It is a bearish pattern. Generally a reversal occurs at the end of a uptrend. Once the price breakout’s it gives a good bearish momentum.

Identification Guidelines

  1. Forms at the end of a uptrend. 
  2. Prices form lower lows and higher highs in the first part of the pattern
  3. Then higher lows and lower highs.
  4. Trend lines surrounding the price action look like a diamond.
  5. The diamond need not appear symmetrical.
  6. The wider the pattern the better

Breakout identification

  1. Volume goes up at the time of breakout.
  2. Breakout day volume is high.
  3. Breakout can be upward or downward so wait for the breakout.
  4. Calculating Target price – Measure the diamond height from the highest high to the lowest low and then add the result to the breakout price if the breakout is upward. Result is the target.
  5. Subtract the result from the breakout price for downward breakouts. The result is the target.

Stoploss

A safe stop loss is below the High/low of the pattern. A risky trader can set stop loss below the middle of the pattern. 

Trading a Diamond Top

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