Diamond Top pattern is a bearish reversal chart formation that indicates the end of an uptrend and the possibility of a downward price movement.
What Is the Diamond Top Pattern and Why Is It Bearish?
A diamond top pattern is a bearish reversal chart pattern that shows up near the end of a strong uptrend.
It looks like a symmetrical diamond built from two phases: first the swings expand (higher highs and lower lows), then they tighten up (lower highs and higher lows). That shift usually means buyers are losing control and supply is starting to hit the tape.
When the market finally stops accepting higher prices, the diamond is basically the “distribution” footprint left behind.
The reversal only really matters once price breaks and closes below support on the bottom side of the diamond. It’s even cleaner when it forms into a major resistance area or after a long, crowded bull run.
Compared with head and shoulders or double tops, diamond tops are rare. That’s why traders pay attention when they do show up—when confirmed, they can kick off a sharp unwind.
When it lines up, it’s often an high-quality reversal signal.
Diamond tops are useful because they give you obvious structure: where you’re wrong (back inside/above the pattern), where the trigger is (support break), and where the move can travel (measured move).
That’s why swing traders and technical investors keep it in the toolkit for spotting inflection points and timing exits before a trend rolls over.
How Does a Diamond Top Form on a Price Chart?
The diamond usually prints as a five-point structure and unfolds in two parts.
Phase Development
Phase 1: Expansion starts after a sustained uptrend. Price begins making wider swings—pushing to fresh highs, then snapping to deeper pullbacks. On the surface it looks bullish, but the growing volatility is often the first crack in the trend.
Phase 2: Contraction is where the energy drains out. Swings compress into lower highs and higher lows, volatility drops, and the market starts coiling. That’s indecision, but it’s also pressure building for the next leg.
Diamond Formation Structure
The diamond becomes obvious once you draw trendlines through the swing points:
A resistance line connecting the upper swing highs
A support line connecting the lower swing lows
The lines expand, then converge, outlining the diamond
The consolidation inside the diamond is the sentiment flip. Early on, buyers still try to push continuation. Later, that demand fades and sellers start leaning on every bounce.
In practice, it’s a trend exhaustion signal after a stretched rally. You’ll often see it as institutions rotate out while late buyers are still chasing.
Because the structure is clean, it also gives straightforward levels for entries, stops, and targets—useful for technical analysis and risk management.
How to Trade a Diamond Top Pattern
Where to Enter a Diamond Top Trade
The clean entry is after price closes below the lower trendline. Ideally it’s a decisive bearish candle, not a tiny poke through support.
A volume pop on the break is a big plus. It also helps if momentum indicators agree with the direction, because diamonds can fake out before they resolve.
You’ve basically got two plays:
Breakdown entry: gets you in early if the move accelerates fast
Retest entry: wait for price to retest broken support as resistance, then sell the rejection for cleaner risk
Context matters. Stocks may need more confirmation because of gaps and headline risk. FX can move fast around macro releases.
Crypto is its own animal—bigger wicks, faster squeezes—so you usually tighten size and respect volatility.
One rule that holds everywhere: don’t short it while it’s still inside the diamond. Let the candle close. Most whipsaws happen when traders front-run the breakdown.
How to Set Profit Targets on a Diamond Top
The standard target is the measured move: take the vertical height of the diamond (top to bottom) and project it down from the breakdown level. If the diamond is 100 pips tall, the first target is 100 pips below the break.
After the break, the old support usually flips into resistance. That area is a common spot to take partials or tighten stops, especially if price comes back to test it and rejects.
Trailing stops help if the move trends clean. You can trail behind lower highs, a moving average, or structure on the way down, so you’re not capped at the first target if the unwind turns into a full trend reversal.
Most traders keep it realistic with a 2:1 or 3:1 risk-reward plan. If the structure doesn’t offer that, it’s usually not worth the trade.
Where to Put a Stop Loss on a Diamond Top
Stops typically go above the upper boundary (or above the apex/recent swing high) so a quick reclaim doesn’t chop you out too early. If price breaks down and then rips back through the pattern, the setup is probably invalid anyway.
Size is what keeps you alive. Risking 1–2% per trade is common for a reason—diamonds can be volatile, and the wrong-sized position turns a normal loss into account damage.
As it moves in your favor, trailing stops reduce downside and keep you from giving it all back on a squeeze.
Stop placement also depends on timeframe. A day trader might use tighter structure-based stops. A swing trader may need more room because daily candles can wick through levels before closing.
Good risk control is the whole game. You can be right 55% of the time and still lose money if you oversize, move stops, or chase breakdowns without confirmation.
How Do You Confirm a Diamond Top Pattern?
What Price Action Confirms a Diamond Top?
The expansion phase is where volatility spikes. Swings widen because both sides are fighting for control, but nobody can hold it. That “messy” action is often the first sign the uptrend is losing its smooth bid.
Then contraction hits and ranges tighten. Momentum fades, participation cools off, and the market starts moving like it’s waiting for permission.
That change in rhythm is the tell—strong trends don’t usually go from clean to choppy to compressed unless something is shifting under the hood.
Different traders use different parts of it. Some day traders trade the expansion swings. Most swing traders care about the contraction and the eventual break.
Position traders use it as a higher-timeframe warning that the bull leg may be done.
It’s generally easier to spot on the 1H, 4H, and daily charts where structure isn’t drowned by noise. The idea works across timeframes, but the lower you go, the more you need confirmation to avoid getting chopped up.
How Does Volume Confirm a Diamond Top Breakdown?
Volume is what separates a real diamond top from a nice-looking sketch. You’ll often see solid volume during expansion, then volume dries up as the pattern tightens.
The important part is the resolution: a volume surge on the breakdown is what confirms sellers actually showed up.
Tools like OBV help here. If OBV is rolling over and then pushes lower with the break, it supports the idea that distribution is real. If OBV doesn’t confirm, you’re more exposed to a fake breakdown and snapback.
Low-volume breaks are the trap. They fail more often, especially in markets that love liquidity grabs. Many experienced traders want to see breakdown volume running well above average—often 50–100% higher—before treating it as the real move.
Volume Behavior Throughout Diamond Top Formation
Pattern Phase | Volume Characteristics | Trading Implication |
|---|---|---|
Expansion Phase | High or increasing | Volatility rises; early sign of trend stress |
Contraction Phase | Decreasing volume | Compression and indecision; energy building |
Breakdown Point | Sharp volume spike | Confirms sellers took control |
Best Indicators for Diamond Top Confirmation (RSI, MACD, Candles)
The main trigger is simple: a break and close below the lower support line. The better setups stack momentum confirmation on top.
Useful add-ons:
RSI bearish divergence: price tags new highs while RSI prints lower highs—classic momentum leak
MACD rollover/cross: histogram fading and a bearish cross adds weight to the break
Candlesticks: shooting star, bearish engulfing, or heavy upper wicks inside the right side of the diamond
Volume: elevated volume on the breakdown is the difference between “signal” and “noise”
Waiting for confirmation saves money. Most bad trades here come from jumping early, before the market actually leaves the pattern. When RSI/MACD/volume line up with the break, the odds improve a lot versus trading the shape alone.
Candlesticks help with timing. If the right side of the diamond starts printing rejection candles at the upper boundary, it often foreshadows the support break.
Combine that with momentum fading and you’re usually not guessing—you’re reading the tape.
Diamond Top Psychology: What It Signals About Buyers and Sellers
What Market Sentiment Shifts Create a Diamond Top?
Diamond tops are basically a sentiment flip caught on a chart. Expansion shows the market getting emotional—bigger swings, more disagreement, more two-way trade.
Contraction is where confidence fades. Buyers stop pushing follow-through, sellers start leaning harder, and volume often dries up while everyone waits.
Eventually buyers run out of fuel. Sellers don’t need to be aggressive at first—they just need buyers to stop bidding. Once support breaks, the “uncertainty” phase ends and the market picks a direction.
Volume tends to confirm the moment the crowd commits. That’s why diamonds work: they map the transition from euphoria to hesitation to liquidation.
It’s the same behavior whether it’s Apple stock, EUR/USD, or a Bitcoin perpetual—different players, same psychology.
Common Diamond Top Mistakes (False Breakouts and Misreads)
The big issue is false breakouts. Diamonds are rare, so traders force the pattern and end up shorting noise.
Don’t treat it like a standalone magic signal. Check the broader market structure, nearby support/resistance, and whether the trend was actually extended before the pattern formed.
Misreads usually come from:
Calling it a diamond when it’s just a messy range
Shorting before a real close below support
Ignoring volume and momentum confirmation
Skipping higher-timeframe context
When you combine the shape with price action, levels, and confirmation tools, it stops being pattern-spotting and becomes a trade plan.
Do Diamond Tops Work in Stocks, Forex, and Crypto?
Diamond tops show up across stocks, FX, and crypto because they’re driven by positioning and sentiment, not by one market’s microstructure.
In equities, they often appear after extended rallies—think overbought tech names where momentum starts to wobble. The better trades are the ones where the breakdown comes with a clear volume expansion and the stock is already stalling under a major weekly level.
In forex, pairs like EUR/USD or GBP/USD can print diamonds around big macro pivots. News risk matters more here, so traders usually pay extra attention to session timing and event calendars.
Crypto is more violent. Bitcoin and Ethereum can form clean diamonds, but wicks are bigger and squeezes are faster, so tighter sizing and stricter invalidation levels matter.
Timeframe choice changes the trade. Day traders may work 15-minute to 1H diamonds for quick breakdowns. Swing traders usually prefer daily/weekly patterns where the structure is cleaner and confirmation is more meaningful.
The pattern stays the same, but execution changes based on volatility, liquidity, and what drives the market that week.
Diamond Top Pattern: Key Takeaways for Traders
The diamond top is a strong bearish reversal pattern when it’s real and confirmed. You’re looking for the same story every time: expansion (stress), contraction (compression), then a decisive break (resolution).
Key takeaways:
Volume confirmation matters—weak volume breaks fail more often
The signal is the close below support, not the shape itself
Success rates improve when momentum + volume + structure align (often quoted around 69–81% with proper confirmation)
Risk management (stops above resistance, sensible sizing, measured targets) is what makes it tradable
It works in stocks, forex, and crypto, but you still need context. Layer it with moving averages, momentum tools, and clean support/resistance, and it becomes a solid part of a reversal playbook instead of a pattern you “hope” works.
If you put in the screen time and stay disciplined on confirmation, diamond tops can give you some of the cleaner “trend is done” signals you’ll see on a chart.
How Do You Turn Diamond Top Setups Into Repeatable, Measurable Trades?
Diamond tops are easiest to trade when you treat them as a process: identify the expansion/contraction structure, wait for the close below support, and manage risk around clear invalidation points. To make that process repeatable, it helps to review each setup after the fact—whether it worked or failed—and track what you saw at the time (volume behavior, RSI/MACD confirmation, entry type, stop placement, and whether you waited for the candle close). Over a sample of trades, patterns emerge: which timeframes produce cleaner breaks, how often retests improve your risk-reward, and what “fake breakdown” conditions show up in your market.
Keeping those details in a trading journal turns subjective chart reading into performance tracking, with PnL, metrics, and notes tied to the exact decision points. A structured tool such as Rizetrade trading journal analytics dashboard for tracking entries, exits, and pattern performance can help you log diamond top trades consistently and compare outcomes across markets, so your confirmation rules and risk management improve based on evidence rather than memory.