Diamond Top Formation

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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.

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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 >>
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