Diamond Bottoms and Trading Tactic
Diamond pattern forms after a downward price trend. Breakout is upward.
Prior price trend. Since we are dealing with diamond bottoms and not
tops, the prevailing price trend is downward leading to the diamond.
The hardest part of identifying any pattern is seeing the shape prices make.
For diamonds, they are especially difficult to identify. However, they occur
many times at price turning points. Thus, look for diamond bottoms at the end
of a downward price trend. Rarely, diamonds appear in the middle of the trend
and prices continue lower instead of reversing.
Diamond shape. When prospecting for diamonds look for prices to widen
out over time forming higher highs and lower lows. The price pattern should
look like a broadening bottom chart pattern. Then, prices narrow, forming lower
highs and higher lows. The second half should look like a symmetrical triangle.
If you draw trend lines around the minor lows and highs, the result should
appear diamond shaped. More likely, the diamond’s top or bottom will be
pushed to one side, making it appear as though the chart pattern is leaning over.
Diamond Bottoms and Trading Tactic
Measure rule 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; subtract the result from the breakout price for downward
breakouts. The result is the target price.
Quick rise/fall Prices often return to the base following a quick rise or fall preceding
the diamond.
Wait for breakout The diamond can break out in any direction, so wait for the breakout.

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