What is a Diamond Top Pattern?
A diamond top is a bearish reversal pattern that shows up after an uptrend. Price expands into wider swings, then contracts into tighter ones — creating a diamond shape on the chart. When the lower boundary breaks, the trend is usually done.
What Does a Diamond Top Pattern Indicate?
It signals distribution and trend exhaustion. The expansion phase is buyers and sellers slugging it out at the top — volatility spikes, but nobody wins decisively. Then participation dries up and the range tightens. Once support breaks, sellers have the wheel.
Is the Diamond Top Pattern Bullish or Bearish?
Bearish. The pattern forms at swing highs and resolves with a breakdown. When it confirms, sellers have taken control from buyers — that's the whole point of the setup.
How to Identify a Diamond Top Pattern?
Look for an uptrend that runs into a two-phase structure — swings widen first, then tighten into a diamond shape.
Clear prior uptrend into the formation
Expansion phase: higher highs and lower lows (widening swings)
Contraction phase: lower highs and higher lows (tightening swings)
At least two swing highs and two swing lows defining the boundaries
Breakdown confirmation comes from a candle close below the lower boundary
How to Draw a Diamond Top Pattern?
Mark the swing highs and lows on each side, then connect them into four boundary lines that converge into the diamond shape.
Find the expansion swings and connect the highs to form the left-side widening resistance line.
Connect the lows from that same phase to form the left-side widening support line.
On the right side, connect the lower highs to form the contracting resistance line.
Connect the higher lows to form the contracting support line.
Extend the lower boundary forward to mark the breakdown level.
How to Trade a Diamond Top Pattern?
Wait for a candle close below the lower boundary. Then pick your entry: take the breakdown, or wait for the retest.
Breakdown entry: short on a decisive close below the lower trendline.
Retest entry: short after price retests the broken lower boundary and rejects it as resistance.
Confirmation tools: rising volume on the breakdown plus bearish momentum (RSI divergence or a MACD rollover) strengthen the signal.
What is the Profit Target for a Diamond Top Pattern?
The profit target is a measured move — the formation's maximum height projected downward from the breakdown point.
Measure the vertical distance from the highest swing high inside the diamond to the lowest swing low inside the diamond.
Subtract that distance from the breakdown level to set the target.
Example: If the diamond's high is $110 and the low is $100, the height is $10. A breakdown at $102 targets $92.
Where to Put a Stop Loss on a Diamond Top Pattern?
Above the most recent swing high on the right side of the diamond, or above the upper boundary. If price reclaims the structure, you're out — fast.
Conservative stop: above the upper trendline of the diamond.
Tighter stop: above the latest lower high near the breakdown area.
What Happens After a Diamond Top Pattern?
Once the pattern breaks down, price usually accelerates lower. From there, it either keeps trending down or retests the broken support as new resistance before the next leg.
Throwback/retest: price revisits the broken lower boundary and rejects it.
Follow-through: consecutive lower highs and lower lows confirm the reversal.
Failure mode: price snaps back inside the diamond and holds, trapping shorts and killing the breakdown.