Diamond Top Formation

Diamond top formation, also known as bearish diamond and diamond reversal, is a technical analysis pattern, which indicates the reversal of a bullish pattern. Although Diamond top formations are created so often, they are reliable and powerful indicators whenever they are created. Bearish diamonds are quite extensively found in forex market because of its high liquidity.

Diamond top formations usually occur at the top of an uptrend and their shape resembles a diamond shape. Many traders misunderstand this shape with head-and-shoulder formation, but in bearish diamond formation there will be high trading volume than head-and-shoulders. A typical diamond is formed because of broadening and then consolidating of a price pattern. Trading volume usually decreases when the pattern consolidates in the second half. Trend lines are plotted connecting top and bottom prices to starting and ending points. Many traders interpret these trend lines as resistance (top lines) and support levels (bottom lines).

Volume associated with diamond top formation indicates the reliability of the pattern; if volume increases, reliability increases. Price targets are set by subtracting top and bottom distance of the pattern from entry point. Many traders also place stop-loss orders close to support levels. The duration of the formation is also an important indicator.

NobleTrading.com Offers Online Stock Trading, Online Options Trading
Online Futures Trading, Online Forex Trading
Worldwide Brokerage Service, Day Trading Brokerage