Diamond Bottom / Diamond Reversal Bottom
Reference values based on Bulkowski's "Encyclopedia of Chart Patterns". Data is primarily from U.S. markets and may differ for other markets.
A diamond-shaped pattern at lows where price fluctuations first widen (broadening) then narrow. Appearing at the end of a downtrend, an upward break above the neckline signals a reversal into an uptrend. This is the inverse of the Diamond Top, suggesting a bottom reversal.
Enter long when price clearly breaks above the diamond's upper trendline on a closing basis. A breakout accompanied by volume increase is more reliable.
Project the distance from the diamond's highest high to lowest low upward from the breakout point. For example: if the highest is 1120 and lowest is 920, the range is 200; from a breakout at 1150, the target is 1350.
Place a stop-loss slightly below the most recent low within the diamond (the low from the contracting phase). If price breaks below the lower edge, consider the pattern invalid.
Volume tends to increase during the broadening phase and decrease during the contracting phase. A volume surge when the neckline breaks upward enhances reliability.