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Diamond Bottom Chart Pattern

Patrick Stockdale
Written by Patrick Stockdale | May 12, 2022

What Is A Diamond Bottom Chart Pattern?

In technical analysis, a diamond bottom pattern is a bullish price reversal chart pattern that forms on the price charts of financial markets at the end of a bearish trend or near a market bottom. It signals that the price of a market will reverse from bearish and declining prices to bullish and increasing prices.

A diamond bottom pattern is shaped like a diamond at the market bottom of a bearish trend.

Diamond Bottom Pattern Components

Diamond bottom pattern components

In order for a trader to identify a diamond bottom pattern on a price chart, there will need to be four components visible on the price chart of a financial market.

The four components of a diamond bottom pattern are:

  • Upward sloping resistance level on the left side: This is the upward sloping resistance level on the left-hand side of the diamond bottom pattern that connects the rising swing highs in the price together.
  • Downward sloping resistance level on the right side: This is the downward sloping resistance level on the right-hand side of the diamond bottom pattern that connects the lower swing highs in the price together.
  • Downward sloping support level on the left side: This is the downward sloping support level that connects the lower swing lows in the price of a market together.
  • Upward sloping support level on the right side: This is the upward sloping support level on the right-hand side of the diamond bottom pattern that connects the higher swing lows in the price of a market together.

Diamond Bottom Chart Pattern Examples

Below are visual examples of the diamond bottom chart pattern.

Example Of A Diamond Bottom Pattern In The Stock Market

Diamond bottom pattern stock market

On the daily price chart of Apple stock, a diamond bottom pattern formed. It signaled a reversal in the price of the stock from a bearish price trend to a bullish price trend.

Example Of A Diamond Bottom Pattern In The Forex Market

Diamond bottom pattern Forex market

In the daily price chart of the EUR/GBP currency pair above, a diamond bottom pattern formed at the end of a bearish price trend.

It resulted in the price of the currency pair reversing from bearish and declining prices to bullish and rapidly increasing prices.

Example Of A Diamond Bottom Pattern On A Shorter Timeframe Price Chart

Diamond bottom shorter timeframe

On the above short-term 1-minute price chart of Soybean futures, a diamond bottom pattern formed.

The price of Soybean futures reversed from a short-term downtrend to a short-term uptrend.

Example Of A Diamond Bottom Pattern On A Higher Timeframe Price Chart

Diamond bottom higher timeframe

On the weekly price chart of Barnes Group stock, a diamond bottom pattern formed.

The bearish price action reversed and the price of the stock made a large bullish price move over the next few weeks.

How To Find Diamond Bottom Patterns

The methods for finding a diamond bottom pattern in the market are:

  • Use a diamond bottom pattern recognition scanner: Use a chart pattern scanner to automatically scan for diamond bottom patterns in the market.
  • Manually browse through the price charts: A trader can manually browse through the price charts of markets to find diamond bottom patterns.

Diamond Bottom Pattern Benefits

The benefits of the diamond bottom pattern are:

  • It can help a trader to find bullish price reversals: A diamond bottom pattern can help a trader spot potential price reversals in the market.
  • It can offer a high reward to risk ratio: A diamond bottom pattern can offer traders a chance to enter a bullish trend with a low-risk to high reward opportunity.
  • It can be applied to any market: A diamond bottom pattern can form and be applied to any market and is not limited to just a few.
  • Both day traders and swing traders can trade the pattern: Both day traders and swing traders can trade the diamond bottom pattern as the pattern is not restricted to just one type of trader.

Diamond Bottom Pattern Limitations

The limitations of the diamond bottom pattern are:

  • They are difficult to find: The diamond bottom pattern can be unclear and difficult to find especially during choppy market environments.
  • They do not occur often: A diamond bottom pattern rarely occurs in the market meaning there are a few trading signals offered to traders.

Diamond Bottom Formation Duration

The length of time a diamond bottom pattern takes to form will depend on the timeframe of the price chart used.

Example length of time a diamond bottom pattern takes to form on different timeframes of price charts include:

  • 90-minutes minimum for a diamond bottom pattern to form on a 3-minute price chart.
  • 120 hours minimum for a diamond bottom pattern for form on a 4-hour price chart.
  • 60 days minimum for a diamond bottom pattern to form on a daily price chart.

Frequently Asked Questions About The Diamond Bottom Pattern

Below are frequently asked questions about the diamond bottom chart pattern.

Is A Diamond Bottom Pattern Bearish?

No. A diamond bottom pattern is not a bearish signal in the market. Instead, the pattern signals potential bullish trends are imminent.

Is A Diamond Bottom Pattern A Reversal Pattern Or A Continuation Pattern?

A diamond bottom pattern is a reversal pattern that indicates that the price of a financial market will reverse from a bearish price trend to a bullish price trend. It is not a continuation pattern.

What Price Chart Timeframes Can A Diamond Bottom Pattern Form On?

A diamond bottom pattern can form on any timeframe of price chart and is not restricted to just one or a few.

What Does A Diamond Bottom Pattern Tell You?

A diamond bottom pattern tells a trader that the bearish trend and declining prices are near the end and that the price of a market may reverse to increasing prices and a bullish trend.

What Is The Difference Between A Diamond Bottom Pattern And A Diamond Top Pattern?

The differences between a diamond bottom pattern and a diamond top pattern are:

  • What it signals: A diamond bottom pattern signals that the price will reverse from bearish price action to bullish price action whereas a diamond top pattern signals that the price will reverse from bullish price action to bearish price action.
  • Where it forms: A diamond bottom pattern forms at the end of a bearish trend or at a market bottom whereas a diamond top pattern forms at the end of a bullish trend or at a market top.