DEFINITION of 'Diamond Top Formation'

A technical analysis reversal pattern that is used to signal the end of an uptrend. This relatively uncommon pattern is found by identifying a period in which the price trend of an asset starts to widen and then starts to narrow. This pattern is called a diamond because of the shape it creates on a chart.

BREAKING DOWN 'Diamond Top Formation'

Since technical traders use this pattern to predict a reversal of an uptrend, a short position is taken when the price falls below the lower ascending trendline. In general, price targets are usually set to be equal to the entry price minus the distance between the top and the bottom of the pattern.

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RELATED FAQS
  1. What are common trading strategies when identifying a Diamond Top Formation Pattern?

    Learn how traders identify diamond top formations and what the pattern signifies. Then, develop a profitable trading strategy ... Read Answer >>
  2. How do I identify a Diamond Top Formation?

    Learn how to identify a diamond top technical chart pattern, a rare formation that analysts look to as a possible sign of ... Read Answer >>
  3. Why is a Diamond Top Formation important for traders and analysts?

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