Diamond pattern forms after an upward price trend. Diamond tops need not form at the top of a price chart. Prices form higher highs and lower lows (widening appearance), then lower highs and higher lows (narrowing appearance). Trendlines surrounding the minor highs and lows resemble a diamond. The diamond need not appear symmetrical.
-Statistics:
Percent of successful formations – 79%
Average decline of successful formations –21%
Likely decline – 20%
Failure rate - 25%
Average time to throwback completion – 11 days
- Trading tactics:
Formations often return to price levels from which they begin. The formation creates a location for support or resistance near the formation bottom. Support and resistance zones are where the trend is likely to stop. Compute the difference between the zone and the current price. The ratio of the two must be compelling enough to risk a trade.
Diamond Bottom
-What it is:
Diamond pattern forms after a downward price trend. Diamond bottoms need not form at the bottom of a price chart. Prices form higher highs and lower lows (widening appearance), then lower highs and higher lows (narrowing appearance). Trendlines surrounding the minor highs and lows resemble a diamond. The diamond need not appear symmetrical.
-Statistics:
Percent of successful formations – 95%
Average rise of successful formations – 35%
Likely rise – 15%
Failure rate - 13%
Average time to throwback completion – 11 days
-Trading tactics:
Formations often return to price levels from which they begin. The formation creates a location for support or resistance near the formation bottom. Support and resistance zones are where the trend is likely to stop. Compute the difference between the zone and the current price. The ratio of the two must be compelling enough to risk a trade.»
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