Diamond is not as common, so the figure is not as popular with dealers.
But when the figure appears on the chart, you have a great opportunity to make big profits.
The diamond appears after a strong upward move, which stops at some point and an expanding triangle begins to form on the chart.
After that, the expansion stops and the reverse process begins – a narrowing of the price, due to which the second part of the diamond is formed.
The narrowing leads to the formation of a second triangle, from which the price breaks out, creating a strong downtrend.
As you will understand, a diamond is an inverted figure.
In addition to the reversal at the peak, the diamond may appear at the bottom, starting a new uptrend.
The same rules apply for the diamond at the bottom of the trend as for the diamond at the top of the trend.
Once you have found a diamond on the chart, you need to wait for it to break.
The breakout point serves as the entry point.
As soon as the price breaks out of the second part of the diamond, you can open a position.
The stop loss it is usually set above the last high, outside the triangle.
To calculate the potential profit, you need to measure the height of the diamond; your goal will be 60-80% of this value.
You need to understand that this is only the first profit target, as the price often goes further, after the diamond.
Therefore, at this point, you can use a strategy with a closing part of the profit.
For conservative traders, there is a second entry point: it will be the price movement of the bottom of a diamond.
Also, for these traders, it is possible to set a stop loss beyond the high of the diamond.
The figure is suitable for medium-term traders who hold positions for several days.
It is the diamond in the medium term that can potentially generate great profits.
Also, it is worth remembering a couple of rules:
It is not worth trading inside a diamond;
And don’t forget to make a stop!