What is a Diamond Bottom Pattern?
A diamond bottom pattern is a bullish reversal setup that forms after a downtrend, when price swings first widen out, then tighten down into a diamond shape before breaking higher.
Volatility explodes during the selloff, then quietly compresses as sellers run out of ammo and buyers start absorbing the offers.
What Does a Diamond Bottom Pattern Indicate?
A diamond bottom tells you sellers are exhausted and buyers are quietly stepping in.
The expansion phase is the panic — wide swings, emotional selling, last-gasp shorts capitulating. The contraction phase is the calm after — supply dries up, dips get bought, and the market shifts from "sell every rally" to "buy every dip."
It's a supply/demand handoff happening in real time.
Is the Diamond Bottom Pattern Bullish or Bearish?
Bullish.
The pattern shows up after a decline and resolves with an upside breakout. Once price closes above the right-side resistance line, you're looking at the start of a new uptrend.
How to Identify a Diamond Bottom Pattern?
You spot a diamond bottom by finding a clear downtrend, then watching for price action that first expands (higher highs, lower lows) and then contracts (lower highs, higher lows) — producing at least 4-6 clean pivot points that outline a diamond.
A clear downtrend leading into the structure
Left side broadens: rising swing highs and falling swing lows
Right side tightens: falling swing highs and rising swing lows
Distinct pivot points showing real reversals
⚠️ Warning: A real diamond requires four clean trendlines touching distinct pivots. Random chop with a few wicks that vaguely fit doesn't count.
How to Draw a Diamond Bottom Pattern?
You draw a diamond bottom by marking the key swing highs and lows, then connecting them with four trendlines — two for the expansion on the left, two for the contraction on the right.
Connect the expanding swing highs on the left with an upward-sloping resistance line.
Connect the expanding swing lows on the left with a downward-sloping support line.
Connect the contracting swing highs on the right with a downward-sloping resistance line.
Connect the contracting swing lows on the right with an upward-sloping support line.
When all four lines connect, you've got your diamond. If you're forcing the lines to fit, the pattern isn't there.
How to Trade a Diamond Bottom Pattern?
Wait for a daily close above the right-side resistance line, then enter long on the breakout — or on a clean retest of that broken line acting as new support.
Breakout entry: Buy the close above the upper-right trendline. Confirm with volume above the 20-day average.
Retest entry: Buy the pullback that holds the broken trendline and prints a higher low. This is the cleaner entry with better risk/reward.
Invalid breakout filter: Ignore intraday spikes that fail to close above the line. Only closes confirm the breakout.
🔥 Pro Tip: Chasing the first green candle above the line leads to fakeouts. The retest entry has a worse fill but allows a tighter stop, which means more size on the same dollar risk.
What is the Profit Target for a Diamond Bottom Pattern?
The profit target is a measured move — take the pattern's full height and project it upward from the breakout point.
Height: highest swing high inside the diamond minus the lowest swing low inside the diamond
Target: breakout price + height
Example: Highest point inside the diamond is $110. Lowest point is $90. That's a $20 height. Breakout fires at $102, so your target is $122.
📌 Key Takeaway: Treat the measured move as a guideline. Scale out by taking partials at the target and letting a runner ride with a trailing stop. Tag every exit in your journal so you can see whether full targets or partials produce a better expectancy over time.
Where to Put a Stop Loss on a Diamond Bottom Pattern?
Put your stop below the most recent right-side swing low for a tight breakout entry, or below the pattern's lowest low for a wider structural stop.
Tighter stop: below the last higher low on the contracting (right) side. Better R multiple, more chance of getting stopped on noise.
Wider stop: below the lowest low printed anywhere inside the diamond. Lower R, but you survive normal pullbacks.
Pick one and stick with it for the whole trade. Moving your stop after entry is how a -1R trade becomes a -4R disaster.
What Happens After a Diamond Bottom Pattern?
After the breakout, price does one of three things: trends higher with follow-through, returns to retest the broken resistance line, or fails outright and breaks back through right-side support.
Throwback/retest: Price revisits the breakout line, holds it as support, and resumes upward. This is the textbook scenario.
Continuation: Strong breakouts keep printing higher highs and higher lows without deep pullbacks. Hold these without overthinking.
Failure mode: Breakout rejects, closes back inside the structure, then breaks the rising right-side support. That's your signal to exit. Don't hope or average down.
💡 Trader Truth: A third of breakouts fail. Follow your stop on the failures and let winners cover losers.