Diamond Bottom pattern is a bullish reversal chart formation that signals the end of a downtrend and the beginning of a potential upward move.
What Is a Diamond Bottom Pattern in Trading?
The diamond bottom is a bullish reversal pattern that shows up at the end of a downtrend. It’s called a “diamond” because price first gets messy and wide (bigger swings), then tightens up (smaller swings). Those expanding and contracting trendlines usually give you clean structure for entries, stops, and targets.
Diamond bottoms are a lot rarer than diamond tops, which is why traders pay attention when a clean one prints. Thomas Bulkowski's comprehensive pattern research is one of the better-known references that tracks how these tend to resolve.
What separates a diamond bottom from other “just consolidating” patterns:
Two-part build: volatility expands first, then contracts
It forms after a downtrend (if there’s no downtrend, it’s not a diamond bottom)
You want at least 4–6 clear swings so the structure is real, not wishful thinking
Most reliable ones take time (weeks to months; the really high-quality ones can take far longer)
The left side widens first, unlike a standard symmetrical triangle that just compresses
For swing traders, the appeal is simple: it often flags the handoff from sellers in control to buyers taking over. If you catch the breakout cleanly, you’re usually in early enough to ride a meaningful reversal instead of chasing it.
On the stats side, research indicates a 73 percent upward break frequency with roughly a 9 percent failure rate in the data cited, and average post-breakout appreciation around 35%. Don’t treat that like a promise, but it’s enough edge to justify having this pattern in your playbook.
It works on most timeframes, but it’s easier to trade and trust on daily/weekly charts where the swings and volume signals are cleaner.
How to Trade the Diamond Bottom Pattern
Best Entry Signals for a Diamond Bottom Breakout
The A+ entry is the close above the upper right trendline with strong volume. That’s your “the pattern is real” moment. If you’re more conservative, wait for the pullback to retest the broken trendline as support. You’ll miss some runners, but your risk is usually tighter and the trade is easier to manage.
At the breakout, price action matters. Strong closes, bullish engulfing candles, or a clean gap above resistance are all better tells than a weak drift. The main mistake is trading inside the pattern because it “looks close.” Let it confirm, then trade it.
How to Set Profit Targets for a Diamond Bottom
The standard target is measured move: take the diamond’s max height (highest peak to lowest trough inside the structure) and project it up from the breakout point. Studies often show around 60–79% of these patterns hitting the measured objective, which is solid if your risk is controlled.
You can also scale out into prior resistance levels from the downtrend. That’s practical because those levels are where supply tends to show up again. If breakout volume is strong and the follow-through is smooth, you can justify holding for more and using a trailing stop. If the move is choppy and volume fades fast, be quicker to take profits.
Diamond Bottom Risk Management: Stops, Sizing, and Risk-Reward
Stops are straightforward: below the lowest low of the pattern, or below the most recent swing low on the right side if you’re using the retest entry. If price breaks back down there, the reversal thesis is wrong and you want out.
Risk Parameter | Guideline | Rationale |
|---|---|---|
Stop-Loss Position | Below pattern's lowest point | Pattern invalidation level |
Risk-Reward Ratio | Minimum 1:2, ideally 1:3+ | Uses pattern height for targets |
Position Sizing | 1-2% account risk per trade | Accommodates high volatility |
Pattern Failure Rate | 9% historical failure | Accounts for false breakouts |
Diamonds can be volatile, so sizing is where traders usually mess this up. Keep risk fixed, respect the stop, and don’t average down because “it has to work.” The historical failure rate is exactly why the stop exists. By respecting volatility's unpredictability and anchoring decisions to the risk management framework, you give yourself room to take the setup repeatedly without one loss doing real damage.
Diamond Bottom Breakout: Timing and Confirmation Signals
Where Is the Breakout Point in a Diamond Bottom?
The breakout is the close above the upper right trendline. Focus on breaks that come out of the tightening right side—those tend to have real compression behind them. Breakouts that happen early, off the expanding left side, are often head-fakes.
After the break, you’ll often see a fast push as shorts cover and momentum traders pile in. A 10–20% initial surge isn’t unusual in volatile names, and composite research often cites ~35% average gains to target. Pullbacks happen too—around 43% retest the breakout area—so you can plan for either the “go” move or the “break and retest” entry.
Strength Factors Influencing Breakout Power
Volume on the breakout (higher is better)
How long the pattern formed (more time usually means more fuel)
How brutal the prior downtrend was (deep selloffs can snap harder)
Overall market tape (risk-on conditions help)
Nearby major support (strong bases tend to reverse cleaner)
Stacking these factors is how you filter for the trades that actually follow through.
How to Confirm a Diamond Bottom Breakout and Avoid Traps
Confirmation Indicators
Close above the trendline (not just an intraday wick)
Volume expansion, ideally well above recent average
RSI/MACD improving (divergence/crossover helps, but don’t overfit it)
Follow-through candles holding above the breakout level
Breakout gaps add conviction, especially on liquid equities
Volume Validation
Volume is the lie detector. A breakout on flat or weak volume is where you see the most traps. When volume expands hard, it usually means bigger players are involved and the move has a better chance of sticking.
Avoiding False Breakouts
The simplest filter is patience: wait for the close, and ideally 1–3 sessions of holding above the level if the name is prone to wicks. Avoid thin liquidity periods where price can be pushed around. This patient approach to breakout confirmation cuts down the whipsaws that make the pattern feel “unreliable.”
How to Identify a Diamond Bottom: Key Criteria and Traits
Diamond Bottom Identification Checklist
Visual Recognition Steps
A practical checklist that keeps you from forcing it:
Make sure there’s a clear downtrend leading into it
Find the expansion: higher highs + lower lows (broadening wedge behavior)
Mark the widest point where swings are at max distance
Confirm the contraction: lower highs + higher lows (tightening triangle)
Draw the four trendlines and see if the shape is actually a diamond
Count at least 4–6 clean swings inside the structure
The two-phase volatility shift (wide then tight) is the signature. If you don’t have that, you probably have a different pattern.
Timeframe Considerations
You can see these on anything from a 15-minute chart to a monthly, but the better signals tend to come from daily and weekly diamonds. More time in the pattern usually means more meaningful positioning and cleaner breakouts. Some of the best ones are slow burns that take months; they’re annoying to sit through, but the move can be worth it.
Common Identification Mistakes
Calling it a diamond bottom when price is just chopping sideways with no real downtrend
Mixing it up with symmetrical triangles or random consolidation boxes
Accepting lopsided, asymmetrical shapes as “close enough”
Trading it before the right-side contraction is actually formed
The left-side expansion can look like a continuation mess, so jumping in early is how traders get chopped up.
What Are the Key Characteristics of a Diamond Bottom?
Support and Resistance Dynamics
The lower trendlines act as rising/dynamic support on the right side, while the upper trendlines cap price until the breakout. The center of the diamond—the widest point—is usually where the biggest fight happened.
After the breakout, that former resistance often flips into support. The pullback/retest is common too; research often cites roughly 43% of breakouts coming back to check that level, which can give a cleaner entry than chasing the initial pop.
Volatility Evolution
Volatility spikes during the expansion phase
Volatility compresses as the right side forms
That compression builds pressure for a directional break
After the breakout, volatility usually expands again as the new trend starts moving
Market Psychology and Sentiment Shift
This pattern is basically sentiment flipping in slow motion. The left side is fear and forced selling. The right side is exhaustion and absorption—less supply hitting the tape, more quiet accumulation.
When price finally breaks out, it’s the market admitting the downtrend is done and the path of least resistance has shifted up. Market participants recognize these characteristics as reliable indicators of impending directional change when the structure is clean and the breakout is confirmed.
How Does a Diamond Bottom Form? Structure and Trendlines
What Does a Diamond Bottom Look Like on a Chart?
Visually, it’s like two triangles stuck together. The left half is a broadening formation: higher highs and lower lows, price whipping around. The right half is a tightening triangle: lower highs and higher lows, price compressing. Put both together and you get the sideways diamond/rhombus look.
Trendline Architecture
You’re basically drawing four lines to box in the swings:
Upper left trendline: connects rising peaks during the expansion
Lower left trendline: connects falling troughs during the expansion
Upper right trendline: connects lower highs during the contraction
Lower right trendline: connects higher lows during the contraction
Symmetry matters because it tells you the market is actually transitioning from chaos to balance. If one side is sloppy or the “diamond” looks stretched and uneven, it often trades more like noise than a reliable reversal setup.
What Are the Expansion and Contraction Phases?
A diamond bottom should come after a real downtrend, ideally one that’s been running long enough to actually exhaust sellers. If the prior move down is shallow or choppy, the “reversal” part is weaker because there’s nothing to reverse.
The expansion phase is usually where you see the emotional stuff: forced selling, stop runs, sharp bounces that don’t stick. Volatility spikes and the chart looks irrational. Then the contraction phase takes over as that panic fades—swings get smaller, sellers stop pressing, and buyers start absorbing supply.
That tightening is the tell. Lower highs and higher lows show the market is compressing into a decision point. Volume often expands on the wild left side and then dries up as the right side forms. This consolidation phase sets the stage for eventual breakout because the market is storing energy instead of bleeding lower.
How Should Volume Behave in a Diamond Bottom?
During the contraction, volume typically fades. That’s not bearish by itself—it often just means participation is dropping as the range tightens and both sides hesitate. What you want is the shift from “everyone dumping” to “nobody left to sell.”
The real confirmation is the breakout with volume. A close above the upper resistance trendline on a strong bullish candle, backed by a clear volume surge, is what separates a tradeable reversal from a random spike. Strong volume accompaniment transforms the breakout into a genuine trading signal because it suggests real demand, not just thin liquidity.
Diamond Bottom Pattern Stats: Success Rate, Failure Rate, and Gains
Historical Diamond Bottom Performance Metrics
Bulkowski’s work and other pattern studies like CentralCharts put real numbers behind the setup. Different datasets vary, but the general takeaway is consistent: when the diamond is clean and the breakout is confirmed, it tends to perform well.
Performance Metric | Success Rate | Data Source |
|---|---|---|
Bullish breakout rate | 82% | Bulkowski studies |
Price target achievement | 60-79% | CentralCharts analysis |
Upward break frequency | 73% | Pattern Encyclopedia |
Failure rate | 9% | Bulkowski studies |
Post-breakout pullback occurrence | 43% | Technical analysis research |
Average gain at target | ~35% | Composite studies |
Compared with more common bottoms like a double bottom or inverse head-and-shoulders, the diamond bottom is less frequent but can be very dependable when it’s properly formed. The rarity is part of the edge—most traders aren’t watching for it, and it tends to show up near real exhaustion points.
What usually improves the odds:
More time building the pattern
Printing near a meaningful support zone
Clear volume contraction then a strong breakout surge
A solid downtrend leading in (often longer than the pattern itself)
Higher timeframe structure (daily/weekly beats noisy intraday)
Traders combining these reliability factors with proper chart pattern analysis usually get a much cleaner experience trading it.
What Do Volume and Price Action Studies Show?
Volume-Breakout Correlation
Volume is the big separator. Studies commonly show that when breakout volume is dramatically above average, target hits jump meaningfully versus low-volume breaks. That’s usually the difference between institutions stepping in versus retail chasing a candle.
Price Action Characteristics
The best ones break out and trend smoothly. If price can’t hold above the level and starts chopping immediately, treat it as suspect. Fast initial follow-through often leads to full measured moves, while slow grinding action with fading volume tends to stall early.
Cross-Asset Case Studies
You’ll see diamonds across markets. Bitcoin has printed diamond bottoms near bear-market lows before major runs. Equities can form them after ugly corrections, just slower. FX pairs sometimes carve them out around multi-year lows and policy-driven support zones.
These pattern formations validate the diamond bottom pattern's effectiveness across cryptocurrencies, equities, and forex markets because the underlying driver is the same: volatility spike, then compression, then resolution.
Real-World Diamond Bottom Examples and Market Psychology
Diamond Bottom Examples Across Stocks, Forex, and Crypto
Historical Chart Analysis
The fastest way to get good at these is studying real charts—both winners and failures. With Bitcoin, you’ll often see the broadening chaos near the lows, then a tight coil before the breakout. In stocks, it’s the same mechanics but usually stretched over months.
The key is checking whether the right side actually contracts cleanly and whether volume behaves like a real exhaustion-to-accumulation transition.
Lessons From Trading Outcomes
The trades that work usually share the same traits: they waited for confirmation, they respected the stop, and they didn’t over-size into the volatility. The trades that fail are predictable too—early entries, weak-volume breakouts, or “diamonds” that were really just uneven chop.
Cross-Asset Applications
The pattern shows up in stocks, forex, crypto, commodities, and indices. What changes is speed and volatility. Altcoins can form and break in weeks. A large-cap equity might take a full quarter. Crude oil and gold can be violent on the breakout. The structure stays the same, so your process can stay the same.
What Does a Diamond Bottom Say About Market Psychology?
The left side is capitulation energy: sellers dumping, stops getting hit, price swinging hard. The widest point is usually peak fear. Then the right side forms as supply dries up—fewer traders are willing to sell lower, and buyers start leaning in. When price finally breaks above the structure, it’s the market flipping from “sell rallies” to “buy dips.” According to technical analysis, this pattern effectively signals weakening selling pressure when it’s confirmed with structure and volume.
How to Build a Diamond Bottom Trading Plan
Combining Technical Analysis Tools
Diamonds trade best when you keep it simple: structure + volume first, indicators second. RSI and MACD can help spot divergence into the right side, moving averages give trend context, and Fibonacci levels can help frame targets. Just don’t let indicators talk you into a breakout that price hasn’t confirmed.
Adapting to Market Conditions
In a strong bull tape, breakouts tend to run and measured moves can be conservative. In risk-off conditions, demand stronger confirmation and consider taking profits quicker into overhead supply. Adjust size to volatility, not to confidence.
Continuous Improvement
Track the trades. Screenshot the pattern, log the breakout volume, note whether you got a retest, and record what the follow-through looked like. Over time you’ll spot which diamonds in your market actually pay and which ones are just pretty shapes.
Diamond Bottom Pattern Summary
The diamond bottom is a high-quality reversal pattern when it’s real: downtrend in, expansion then contraction, and a confirmed breakout with volume. The stats people cite—like an 82% bullish breakout rate in Bulkowski’s work and a roughly 9% failure rate—are strong enough to justify trading it, but only with disciplined execution.
If you can read the structure, wait for the close above resistance, and manage risk under the pattern, the setup gives you a clean way to catch major turns without guessing. Study enough charts across equities, BTCUSD, EURUSD, and commodities like WTI crude, and the pattern starts to stand out fast—especially the difference between a true volatility diamond and a random consolidation that just looks close.
How do you turn diamond bottom setups into repeatable, measurable improvement?
The diamond bottom is most useful when you treat it as a process: identify the downtrend, verify the expansion-to-contraction structure, wait for a confirmed close above the right-side trendline, and then execute with defined stops and targets. To make that process repeatable, you need feedback beyond “it worked” or “it failed.” Logging each diamond attempt—timeframe, pattern symmetry, breakout volume, retest behavior, stop placement, and whether the measured move was reached—helps you see which criteria actually drive your results in the markets you trade.
Over a meaningful sample size, a trading journal also exposes common execution leaks (early entries inside the pattern, oversizing into volatility, moving stops) and lets you track performance metrics like win rate, average R-multiple, and PnL by setup type. Using a structured tracker such as Rizetrade trading journal analytics for pattern-based performance tracking can make those reviews faster and more consistent, so the next diamond bottom you trade is informed by your own data—not just pattern stats.