A diamond top is a widening swing followed by a narrowing one at the end of an advance, outlined by four lines. It is rare and open to interpretation, and it is completed only by a close below the lower-right line.
What is the diamond top pattern?
A diamond top is a reversal chart pattern that forms after an advance. Price first swings in a widening range, making higher highs and lower lows, and then in a narrowing range, making lower highs and higher lows. Lines drawn along the swing points outline a diamond, widest in the middle, and a close below its lower-right side completes the pattern.
Edwards and Magee's Technical Analysis of Stock Trends treats the diamond among the other reversal phenomena rather than the major reversal patterns. It takes weeks of daily sessions to form, and because the four lines depend on which swings you choose, two chartists can see different diamonds, or none, on the same chart.
How to identify a diamond top
Identify the swing highs and lows first, then test whether they widen and narrow in the order a diamond requires. Use one kind of price for every swing, either closes or the highs and lows of the candles; the figure uses highs and lows.
- An advance precedes the pattern.
- Widening half: at least two swing highs that rise and two swing lows that fall.
- Narrowing half: at least one lower swing high and one higher swing low after the widest point.
- Four lines connect the swings: rising along the left-side highs, falling along the left-side lows, falling along the right-side highs and rising along the right-side lows.
- The pattern completes on a close below the lower-right line.
| Swing | Session | Price ($) | Phase |
|---|---|---|---|
| First high | 13 | 51.45 | Widening |
| First low | 16 | 48.00 | Widening |
| Highest high | 19 | 54.00 | Widest point |
| Lowest low | 24 | 46.50 | Widest point |
| Lower high | 27 | 51.70 | Narrowing |
| Higher low | 30 | 48.85 | Narrowing |
Counting the first candle on the left as session 1, the highs rise from $51.45 to $54.00 and then fall to $51.70, while the lows fall from $48.00 to $46.50 and then rise to $48.85: a widening swing followed by a narrowing one.
Trend context: reversal or continuation
A diamond top is read as a reversal because it follows an advance; in the figure, closes rose 17.6% over the seven sessions before the pattern began. The widening half shows a market losing its orderly trend, with larger swings in both directions, and the narrowing half shows the swings compressing toward a decision.
The decision can go either way. A diamond that resolves upward, with a close above the upper-right line, acts as a continuation of the advance rather than a top, which is why the breakout direction, not the shape, is the answer. Diamonds also form after declines, where they can mark a diamond bottom.
Confirmation: a close below the lower-right line
The usual confirmation is a daily close below the lower-right line, the rising line along the right-side lows. Because that line rises, its value changes each session, so read it on the day of the break rather than from an earlier swing. Some chartists also want a close below the last swing low inside the pattern, which confirms later and at a lower price.
- In the figure, the breakout session closes at $48.70 while the lower-right line stands near $49.61 on that session.
- A move below the line during the session that closes back inside the diamond is a test, not a confirmation.
- Some chartists project the diamond's widest height from the breakout as a reference distance. It is a planning convention, not a forecast.
Volume analysis for a diamond top
Volume in a diamond top often follows the shape: heavy and erratic while the swings widen, lighter as they narrow, and heavier again on the breakdown. Rising volume on the close below the lower-right line shows broad participation in the break.
- 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.
- A breakdown on light volume is easier to reverse, as the failure example shows.
- Heavy volume on the rallies of the narrowing half, rather than on the declines, can argue against the top reading.
Failure examples: a false breakdown
A diamond top fails when a break below the lower-right line does not hold, or when price closes above the upper-right line instead. In the hypothetical example below, one session closes below the lower-right line on light volume, the next closes back inside the diamond, and two sessions later a close above the upper-right line on heavy volume ends the top reading as the advance resumes.
Treat a single close beyond a line with caution when it comes on light volume, and decide in advance how many closes, or how far beyond the line, you require. Writing the rule down before the break keeps hindsight out of the decision.
Diamond top vs head-and-shoulders and other look-alikes
A diamond top is easy to confuse with patterns that share one of its halves or its central peak. The table compares the shape of each and the close that completes it.
| Pattern | Shape | Completed by |
|---|---|---|
| Diamond top | Widening swings, then narrowing swings, outlined by four lines | A close below the rising lower-right line |
| Head and shoulders | Three peaks with the middle one highest and two troughs that set a neckline | A close below the neckline |
| Broadening top | Only widening swings: higher highs and lower lows | A close below the lower line |
| Symmetrical triangle | Only narrowing swings from the start | A close outside either line |
The head-and-shoulders comparison matters most, because a diamond also has a dominant central peak. In a head-and-shoulders top, the troughs on either side of the head are roughly level and form a neckline. In a diamond, the left-side lows fall and the right-side lows rise, so the lower boundary is two lines meeting at the lowest low. The diamond's lower-right line slopes upward, so it is usually broken sooner and at a higher price than a neckline would be. Some formations fit both descriptions, and classical texts note that a diamond can resemble a complex head-and-shoulders top.
Research checklist
A diamond needs a longer view than a candle pattern. Use a 6M or 1Y range in Stock Charts so the whole formation and the advance before it are visible, with the volume pane open. TradeClever does not detect chart patterns or draw pattern lines, so record the swing points in your notes.
- Measure the advance before the pattern.
- List the swing highs and lows in order, with dates and prices.
- Check that they widen and then narrow.
- Work out the value of the lower-right line for the coming sessions.
- Compare volume in the widening and narrowing halves and on the break.
- Record whether the break holds over the next sessions, and keep failed diamonds in your notes too.
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.