A diamond bottom is a widening swing followed by a narrowing one at the end of a decline, outlined by four lines. It is rare and subjective, and it is completed only by a close above the upper-right line.
What is the diamond bottom pattern?
A diamond bottom is a reversal chart pattern that forms after a decline. Price first swings in a widening range, setting lower lows and higher highs, and then in a narrowing range, setting higher lows and lower highs. The four lines along those swings outline a diamond, widest in the middle, and a close above its upper-right side completes the pattern.
It is the mirror image of the diamond top and is discussed less often. The widening first half often reflects sharp drops and sharp rebounds late in a decline, and the narrowing second half shows both sides retreating toward a decision.
How to identify a diamond bottom
Mark the swing points in order and test the sequence: lows that fall while highs rise, then lows that rise while highs fall. As with the top, use one kind of price for every swing; the figure uses the highs and lows of the candles.
- A decline precedes the pattern.
- Widening half: at least two falling swing lows and two rising swing highs.
- Narrowing half: at least one higher swing low and one lower swing high after the widest point.
- Four lines connect the swings, with the upper-right line falling along the right-side highs.
- The pattern completes on a close above the upper-right line.
| Swing | Session | Price ($) | Phase |
|---|---|---|---|
| First low | 12 | 48.80 | Widening |
| First high | 15 | 51.85 | Widening |
| Lowest low | 18 | 46.00 | Widest point |
| Highest high | 23 | 53.40 | Widest point |
| Higher low | 26 | 48.45 | Narrowing |
| Lower high | 29 | 51.25 | Narrowing |
Counting the first candle on the left as session 1, the lows fall from $48.80 to $46.00 and then rise to $48.45, while the highs rise from $51.85 to $53.40 and then fall to $51.25.
Trend context: the decline before it
A diamond bottom is a reversal reading because it follows a decline; in the figure, closes fell 13.1% over the seven sessions before the pattern began. It carries more weight near a long-term support level or after a decline that has stretched far below its moving averages.
A diamond that breaks downward instead, with a close below the lower-right line, continues the decline. The shape does not decide the direction; the close beyond a line does.
Confirmation: a close above the upper-right line
The usual confirmation is a daily close above the upper-right line, the falling line along the right-side highs. That line falls each session, so read its value on the day of the breakout. A stricter test is a close above the last swing high inside the pattern.
- In the figure, the breakout session closes at $51.40 while the upper-right line stands near $50.56.
- A move above the line during the session that closes back inside the diamond is a test, not a breakout.
- Volume on the breakout session is part of the confirmation for many chartists, as the next section explains.
Volume analysis for a diamond bottom
Bottoms usually need demand to show up in the volume. Heavy, uneven volume during the widening half, lighter volume as the swings narrow and a clear expansion on the breakout is the profile chartists look for.
- In the figure, average volume is higher in the widening half than in the narrowing half, and the breakout session trades 1.8 times its ten-session average.
- An upside break on light volume is easier to reverse, as the failure example shows.
- Rising volume on the rallies of the narrowing half suggests that buyers are becoming more active before the breakout.
Failure examples: a false breakout
A diamond bottom fails when a close above the upper-right line does not hold, or when price closes below the lower-right line. In the hypothetical example below, one session closes above the upper-right line on light volume, the next closes back inside, and two sessions later a close below the lower-right line on heavy volume ends the bottom reading as the decline resumes.
A false breakout is the typical failure of any bottom pattern. Waiting for a second close beyond the line, or for a close above the last swing high, filters some of them out at the cost of confirming later.
Diamond bottom vs inverse head-and-shoulders and other look-alikes
The diamond bottom shares features with other bottoms, and the distinction lies in the lines along the swings. The table compares their shapes and the close that completes each.
| Pattern | Shape | Completed by |
|---|---|---|
| Diamond bottom | Widening swings, then narrowing swings, outlined by four lines | A close above the falling upper-right line |
| Inverse head and shoulders | Three troughs with the middle one lowest and two peaks that set a neckline | A close above the neckline |
| Broadening bottom | Only widening swings | A close above the upper line |
| Symmetrical triangle | Only narrowing swings from the start | A close outside either line |
Against an inverse head-and-shoulders, look at the peaks on either side of the lowest low. In an inverse head-and-shoulders they are roughly level and form a neckline. In a diamond bottom the left-side highs rise and the right-side highs fall, so the upper boundary is two lines meeting at the highest high, and the falling upper-right line is usually crossed sooner and at a lower price than a neckline would be.
Research checklist
View the whole formation and the decline before it with a 6M or 1Y range in Stock Charts, with volume visible. TradeClever does not detect chart patterns or draw pattern lines, so write the swing points in your notes.
- Measure the decline before the pattern.
- List the swing lows and highs in order, with dates and prices.
- Confirm the widening-then-narrowing sequence.
- Calculate the upper-right line for the coming sessions.
- Compare breakout volume with the recent average.
- Track whether the breakout holds, and record failures as carefully as successes.
Sources
- Robert D. Edwards, John Magee and W.H.C. Bassetti, Technical Analysis of Stock Trends, 11th edition (Routledge), chapter 10, Other Reversal Phenomena: the diamond
Read our data and methodology notes for calculation context. This guide explains research tools and observations. It does not recommend a trade or investment.