Diamond tops are a reversal pattern. This pattern is formed by two juxtaposed symmetrical triangles. It’s shape is like a diamond.
Diamond tops have to be preceded by an upward trend. This pattern shows the shortness of buyers and as a result investor’s indecisiveness. However, this pattern will reflect a growing volatility which will eventually be reduced towards the end of the diamond.
Oscillations are of multiplied amplitude and then decreasing which suggests a trend reversal. Actually buyers will gradually abdicate.
The target of the pattern is calculated by plotting the maximum height of the diamond at the exit point. The downward movement is normally as fast as the upward trend that preceded it.
A graphic representation of a diamond tops is as follows:
Following are some statistics about diamond tops:
– In 80% of cases, there is a downward exit.
– In 95% of cases, the target of the pattern is reached.
– In 59% of cases, a pull back will occur.
There are three times more diamonds tops than diamonds bottoms.
It is occasionally possible to see an inverted head and shoulders within the diamond bottoms.
This pattern is quite hard to see. At the beginning of the formation of a diamond, the pattern appears to be like a widening of a symmetrical triangle. But, the symmetrical triangle is a continuation pattern and the diamond is a reversal pattern.