Diamond Top Formation

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Trend

    The general direction of a market or of the price of an asset. ...
  2. Short (or Short Position)

    1. The sale of a borrowed security, commodity or currency with ...
  3. Technical Analysis

    A method of evaluating securities by analyzing statistics generated ...
  4. Head And Shoulders Pattern

    A technical analysis term used to describe a chart formation ...
  5. Reversal

    A change in the direction of a price trend. On a price chart, ...
  6. Pattern

    In technical analysis, the distinctive formation created by the ...
RELATED FAQS
  1. What are common trading strategies when identifying a Diamond Top Formation Pattern?

    A diamond top formation is seen at the end of an uptrend, signaling the trend has run out of momentum and will soon reverse. ... Read Full Answer >>
  2. How do I identify a Diamond Top Formation?

    Technical analysts and traders look to diamond top formations as possible reversal pattern signals. The only way to identify ... Read Full Answer >>
  3. How do I find the information needed for input into the Dividend Discount Model (DDM)?

    Analysts and investors should utilize a company’s financial statements, stock information websites and any number of analysis ... Read Full Answer >>
  4. What does the Dividend Discount Model (DDM) show an investor about a company?

    The dividend discount model, or DDM, is not designed to be used in forecasting any possible capital gains from increases ... Read Full Answer >>
  5. If a company has a high debt to capital ratio, what else should I look at before ...

    A variety of equity valuation metrics can be utilized to evaluate a company along with the debt to capital ratio to get a ... Read Full Answer >>
  6. How can a firm bring down its operating leverage?

    A company with a lower percentage of fixed costs and a higher percentage of variable costs uses less operating leverage. ... Read Full Answer >>
Related Articles
  1. Forex Education

    Tweezers Provide Short-Term Precision For Forex Traders

    Precise and short, the tweezer setup is similar to the more popular double top/bottom formations.
  2. Forex Education

    Introducing The Bearish Diamond Formation

    Profit-taking opportunities abound using this lesser-known pattern. Find out how.
  3. Forex Education

    How To Interpret Technical Analysis Price Patterns: Triple Tops And Bottoms

    Triple and double tops and bottoms may be tough to spot, but once you learn them, they can be powerful patterns.
  4. Options & Futures

    How To Use Volume To Improve Your Trading

    Volume is a simple yet powerful way for traders and investors to increase their profits and minimize risks.
  5. Trading Strategies

    How To Trade The Head And Shoulders Pattern

    The head-and-shoulders chart pattern is a popular and easy-to-spot pattern - once a trader is aware of what they are watching for.
  6. Trading Strategies

    Introduction To Technical Analysis Price Patterns

    To "find your game" in technical analysis, you need to be able to recognize reversals and continuations as they form.
  7. Charts & Patterns

    Why These May Be the Top 4 Growth Stocks of 2015

    These four stocks have high upside potential in 2015.
  8. Chart Advisor

    Interested in Growth Stocks? See These 4 ETFs

    Given the rise in popularity of growth ETFs, there are several interesting growth stock choices for investors.
  9. Chart Advisor

    Watch Out For Falling Copper Prices

    Commodity traders have been turning their attention toward copper prices over the past several weeks.
  10. Chart Advisor

    Watch for Bullish MACD Crossovers in These Stocks

    These stocks are trending higher but recently experienced a pullback. Watch for a bullish MACD crossover to indicate upward momentum is continuing.

You May Also Like

Hot Definitions
  1. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  2. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  3. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  4. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  5. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
  6. Tangible Net Worth

    A measure of the physical worth of a company, which does not include any value derived from intangible assets such as copyrights, ...
Trading Center