Diamond Bottom

Identification Criteria

• Forms after a downtrend, never in the middle of a range.
• The first half shows widening swings — each new low is lower and each new high is higher than the one before.
• The second half shows narrowing swings that converge back toward an apex, exactly like a symmetrical triangle.
• Volume classically expands during the widening phase and contracts during the narrowing phase, then expands again on the breakout.
• As with the diamond top, this pattern requires a long formation period with multiple touch points on each side.

Formation Logic

The widening phase reflects rising disagreement between buyers and sellers near a market bottom, with each swing overshooting the last. The narrowing phase that follows shows that disagreement resolving into a tighter range as selling pressure quietly exhausts itself — the diamond shape is the visual signature of volatility expanding and then compressing before the trend reverses upward.

Breakout / Confirmation Rule

Confirmation requires a decisive close above the upper boundary of the narrowing (right) half of the pattern, ideally on rising volume. Do not treat the pattern as a diamond bottom until the narrowing phase is clearly visible — the widening phase alone looks identical to an ordinary broadening formation.

Measured-Move Price Target

A commonly used, purely illustrative technique: measure the tallest vertical distance within the diamond (from its widest high to its widest low), then project that distance above the breakout point.

Common Pitfalls

• Genuinely rare — many "diamond-looking" shapes never develop the narrowing second half required to confirm the pattern.
• The long formation period and many required touch points tempt traders to call the pattern too early.
• Easy to confuse with a complex inverse head-and-shoulders variant once the narrowing phase begins.