A reversal pattern is called a diamond bottoms. This pattern is formulated by two juxtaposed symmetrical triangles. It is shaped like a diamond.
Diamond bottoms must be preceded by a downward trend. This pattern targets the shortness of sellers and consequently investor’s indecisiveness. Similarly, this pattern shows a growing volatility which is gradually reduced towards the end of the diamond.
Oscillations are increasing amplitude and then decreasing thus suggesting a trend reversal. Actually sellers gradually abdicate.
The target of the pattern is figured by plotting the maximum height of the diamond at the exit point. The upward movement is normally faster as the downward trend that precedes it.
Here is a graphic representation of a diamond bottoms:
Statistics about the diamond bottoms are as follows:
– In 82% of cases, there is an upward exit.
– In 60% of cases, the target of the pattern is reached.
– In 43% of cases, a pull back occurs.
There are three times more diamonds tops than diamonds bottoms.
It occasionally is possible to see an inverted head and shoulders within the diamond bottoms.
This pattern is difficult to see. At the beginning of the diamond formation, the pattern appears like a widening of a symmetrical triangle. But, the symmetrical triangle is a continuation pattern and the diamond is a reversal pattern.