The Diamond Chart Pattern is a rare but powerful technical formation that signals potential trend reversals in financial markets, including forex, stocks, and commodities. It occurs when price action expands and then contracts, forming a shape that resembles a diamond. This pattern typically appears at market tops (Diamond Top) or bottoms (Diamond Bottom), indicating a reversal in price direction.

Formation
1. Widening Phase The price makes higher highs and lower lows, forming an expanding structure.
2. Contracting Phase The price starts making lower highs and higher lows, leading to a narrowing shape.
3. Breakout Once the price exits the pattern, it typically moves sharply in the breakout direction.

Trading the Diamond Pattern
Diamond Top: Found after an uptrend, signalling a bearish reversal. Traders look for short opportunities when the price breaks downward.
Diamond Bottom: Found after a downtrend, signalling a bullish reversal. Traders enter long positions when the price breaks upward.

Key Considerations:
Volume often declines inside the pattern and increases at the breakout.
Stop-loss orders are placed just outside the pattern for risk management.
Confirmation with other indicators, such as RSI or MACD, strengthens reliability.

Though uncommon, the Diamond Chart Pattern can provide high-probability setups when identified correctly.