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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Chart Patterns: After the Buy
Getting Started in Chart Patterns, Second Edition book.
Trading Basics: Evolution of a Trader book.
Fundamental Analysis and Position Trading: Evolution of a Trader book.
Swing and Day Trading: Evolution of a Trader book.
Visual Guide to Chart Patterns book.
Encyclopedia of Chart Patterns 2nd Edition book.

Bulkowski's Diamond Bottoms

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Busted
Patterns
Candles Chart
Patterns
Event
Patterns
Small Patterns
Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 12/02/2016
19,192 68.35 0.4%
9,037 55.55 0.6%
627 -6.01 -0.9%
5,251 -72.57 -1.4%
2,192 0.87 0.0%
YTD
10.1%
20.4%
8.5%
4.9%
7.2%
Tom's Targets    Overview: 11/30/2016
18,700 or 19,300 by 12/15/2016
8,650 or 9,200 by 12/15/2016
650 or 605 by 12/15/2016
5,130 or 5,400 by 12/15/2016
2,150 or 2,300 by 12/15/2016

Written by and copyright © 2005-2016 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.

For more information on this pattern, read Encyclopedia of Chart Patterns Second EditionEncyclopedia of Chart Patterns 2nd Edition book., pictured on the right, pages 179 to 195.

If you click on this link and then buy the book (or anything) at Amazon.com, the referral will help support this site. Thanks. -- Tom Bulkowski

$ $ $

Let me be clear about this: I don't like diamonds. They are as tough to spot as night crawlers in the grass on a summer night. Most often, you'll find diamond bottoms in a bull market with an upward breakout, but those in a bear market rank second for overall performance in part, I think, because I found so few. A redeeming quality of diamond bottoms is that a quick rise often follows a quick decline.

 

Diamond bottom chart pattern

Diamond Bottom

Score your chart pattern for
performance by clicking here

Important Bull Market Results for Diamond Bottom

Overall performance rank for up/down breakouts (1 is best): 8 out of 23; 1 out of 21
Break even failure rate for up/down breakouts: 4%; 10%
Average rise/decline: 36%; 21%
Throwback/pullback rate: 53%; 71%
Percentage meeting price target for up/down breakouts: 81%; 63%

The above numbers are based on hundreds of perfect trades. See the glossary for definitions.

Diamond Bottom Identification Guidelines

CharacteristicDiscussion
Price trendDownward leading to the pattern.
ShapeLooks like a diamond, but usually one tilted to the side.
TrendlinesPrices form higher peaks and lower valleys (a broadening pattern) in the first part of the pattern, then price action narrows with lower peaks and higher valleys. Trendlines outline many of the peaks and valleys, forming a diamond shape.
TouchesPrices will touch each trendline once or twice. Don't worry if your lines cross some of the price outliers.
Volume trendDownward trend 66% of the time.
BreakoutUpward 69% of the time.
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Diamond Bottom Trading Tips

Consult the associated figure on the right.

Trading TacticExplanation
Measure ruleSee the measure rule figure to the right. Compute the height from the highest peak (A) to the lowest valley (B) in the pattern and then multiply it by the above “percentage meeting price target.” Add it (upward breakouts, point A) or subtract it (downward breakouts, point B) from the breakout price to get the price target (C).
Price trendSee the price trend figure to the right. If price makes a quick, nearly vertical drop (A) leading to the diamond and the breakout is upward, expect price to recover back to the price at which it started the plunge (B). Also, price must have something to reverse. Diamonds with short-term (less than three months) price trends leading to the diamond perform best.
Half staffSee the half staff figure to the right. If the diamond acts as a continuation pattern, meaning that price exits (C to D in the same direction as it entered the pattern (A to B), then the diamond can act as a half-staff pattern (half the move is still ahead). The move after the breakout (CD) will often fall short, so look for overhead resistance or underlying support where price might stall.
Price velocityHigh velocity moves after the pattern often follow high velocity moves leading to the pattern.
Yearly lowFor best performance, diamonds with breakouts within a third of the yearly low perform best.
Volume trendA rising volume trend results in the best post breakout performance.
Throwbacks and pullbacksThrowbacks and pullbacks hurt post breakout performance.

Diamond bottom chart pattern measure rule

The Measure Rule

Diamond bottom chart pattern prince trend

Price Trend

Diamond bottom chart pattern half staff measure

Half Staff

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Diamond Bottom Example

Diamond bottom chart pattern example

The above figure shows an example of a diamond bottom chart pattern. Many times the diamond chart pattern is skewed or pushed to one side, making diamonds difficult to spot. In this example, outliers A and B hide the diamond shape.

Notice that price at D tries to climb back to the launch point C but does not quite make it. That is typical behavior so plan accordingly when you trade. This diamond bottom also shows a U-shaped volume pattern.

-- Thomas Bulkowski

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Other Diamond Bottom Examples

See Also

Written by and copyright © 2005-2016 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. For people who like peace and quiet: a phoneless cord.